Conforming vs. Non-Conforming Mortgages

Conforming and non-conforming mortgages get you home ownership, but with different guidelines.

Conforming and non-conforming mortgages get you home ownership, but with different guidelines.

You've probably heard the terms "conforming" and "non-conforming" mortgages and wondered which loan category you might choose. Most mortgage loans are sold into the secondary market. The conforming secondary market consists of Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation), who establish overall qualification standards -- maximum loans, credit report requirements, down payment minimums, and other qualification requirements.

Non-Conforming Mortgage Categories

True non-conforming mortgages are any loans that Fannie Mae and Freddie Mac do not typically buy. For example, if you have excellent credit but want to buy an expensive home and need a $500,000 mortgage, you'll need a "jumbo" non-conforming loan. It is non-confirming because this amount is higher than the Fannie/Freddie maximum for most counties of $417,000.

Government Loans Are Non-Conforming

The Federal Housing Administration offered -- and continues to offer -- the original non-conforming mortgages. The Department of Veterans Affairs offers mortgages for active and former military families have also offered non-conforming loans to veterans since the end of World War II. Both of these government lenders make mortgages with different criteria than lenders that offer conforming loans. For example, the FHA does not define its qualifications or interest rates by your credit score. They look at your entire application package, and often approve borrowers for low-rate fixed and adjustable mortgages with credit scores lower than acceptable for conforming loans.

Many Non-Conforming Loans Have Disappeared

During the real estate boom of the early 21st century, borrowers with little cash for down payments, poor credit, self-employed people, and others with conditions that didn't meet conforming requirements had many non-conforming loan options. The rates and terms were not attractive, but almost anyone wishing to become a homeowner could do so. Since the mortgage "bubble" burst in 2007, most of these non-conforming loans disappeared, because the secondary market refused to buy them. Without loan buyers, most mortgage companies had to stop offering creative, non-conforming mortgages.

Conforming vs. Conventional Mortgages

"Conforming" mortgages are often confused with "conventional" loans. However, the terms are not interchangeable. Conventional mortgages are all home loans that are not made or guaranteed by the government. Therefore, all mortgages other than those offered by the FHA, VA, and the U.S. Department of Agriculture through its Rural Housing Service program, are conventional loans. These may be conforming per Fannie Mae and Freddie Mac guidelines, or non-conforming mortgages, such as jumbo or interest-only loans.


About the Author

For 34 years Bill Pirraglia served as a senior executive in the banking industry. Since 2005, he has authored articles, blog entries, tips and advice columns, SEO web copy and two published books. He specializes in personal and business finance topics, along with legal articles for clients large and small.

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