Conforming Loan Definition

• Conforming loans are conventional mortgages that meet the prescribed loan guidelines established by Fannie Mae and Freddie Mac. These giant lending corporations are owned by stockholders. They purchase mortgages in the secondary market from banks and other mortgage loan originators, then selling the loans as packaged securities to investors. Lenders must adhere to established conforming loan maximums and guidelines to allow for sale in the secondary market to Fannie Mae and Freddie Mac.
  
  

Conforming Loan Limits

• The aforementioned single-unit limits for general areas and for high cost areas include the 48 contiguous states, District of Columbia and Puerto Rico. Additional limits in these areas for two- to four-unit properties are $533,850, $645,300 and $801,950, respectively, for general markets, according to Fannie Mae. In high cost areas, the respective limits are $934,200, $1,229,250 and $1,403,400. For Alaska, Guam, Hawaii and the U.S. Virgin Islands, Fannie Mae has a general limit of $625,500 and a high cost area limit of $938,250 for single-unit properties.
  
  

Other Guidelines

• Along with establishing basic maximum loan limits, Fannie Mae and Freddie Mac also identify guidelines in other areas. Lenders must generally meet all specific guidelines in order to resell mortgages to these corporations. Other common guidelines include borrower credit and income requirements, down payment and suitable properties requirements. Guidelines, along with loan limits, are reviewed and often adjusted on an annual basis.
  
  

Non-Conforming Loans

• People buying more expensive properties can get non-conforming loans. Non-conforming loans that are larger than the allowable conforming loan limits are usually called jumbo loans. Lenders that sell these loans typically service the loan themselves or they must find private investors to purchase them on the secondary market. Because of the limited resale opportunities, jumbo loans typically have slightly higher interest rates than conforming loans.