Is a Conventional Loan the Same Thing as a Conforming Loan? | Better Mortgage (2024)

FAQs

Is a Conventional Loan the Same Thing as a Conforming Loan? | Better Mortgage? ›

A conforming loan is one that meets specific criteria set by the FHFA, including conforming loan limits. A conventional loan is any loan that isn't guaranteed or insured by the government (FHA, VA and USDA loans). Conventional loans can be either conforming or non-conforming.

Higher Interest Rates: As conventional loans are not backed by any government agency, lenders may charge higher interest rates compared to conforming loans. This means that borrowers could end up paying more in interest over the life of the loan.

Higher Closing Costs

As noted above, conventional loans tend to have lower closing costs (and be cheaper in general) than government-backed options. However, the downside of conventional loans is that they don't offer as much flexibility to help you avoid paying those costs upfront.

Conforming loans typically offer lower interest rates than other types of mortgages. Lenders prefer to issue conforming loans because they can be packaged and sold in the secondary mortgage market.

In a nutshell

A conforming loan is a mortgage product that meets Fannie Mae and Freddie Mac guidelines. For 2024, the loan limit is $766,550 for most houses and up to $1,149,825 in high-cost areas. The loan limit is set by the Federal Housing Finance Agency (FHFA) and changes annually based on the House Price Index.

A conforming loan is one that meets specific criteria set by the FHFA, including conforming loan limits. A conventional loan is any loan that isn't guaranteed or insured by the government (FHA, VA and USDA loans). Conventional loans can be either conforming or non-conforming.

Conventional loans can require less paperwork and can be obtained more quickly than government-insured loans. Mortgage lenders can approve conventional loans without the typical delays incurred with FHA or government-backed loans.

If you have a credit score of 700 or higher, a debt-to-income ratio of 35% or lower, and a 20% down payment for your loan, a conventional mortgage may be your best bet. If your credit score is lower than 640 or you can't put 20% down, you may want to consider an FHA or USDA loan instead.

Down payment: While 20 percent down is the standard, many fixed-rate conventional loans for a primary residence allow for a down payment as small as 3 percent or 5 percent. Private mortgage insurance (PMI): If you put down less than 20 percent, you'll have to pay PMI, an additional fee added to your payments.

A conventional loan is a safe, transparent loan that follows the rules put in place by Freddie Mac and Fannie Mae. Typically over the long haul, a borrower will save more money on a conventional loan over an FHA loan. Conventional fixed rate loans are the gold standard in lending and have been for the past 30 years.

What is the minimum down payment for a conforming loan? ›

Conforming loans may require a down payment. The down payment must be at least 3% for a fixed-rate mortgage or 5% for an adjustable-rate mortgage. If you make a down payment of less than 20% on a conventional conforming loan, you typically have to pay for private mortgage insurance, or PMI.

The minimum down payment required for a conventional mortgage is 3%, but borrowers with lower credit scores or higher debt-to-income ratios may be required to put down more. You'll also likely need a larger down payment for a jumbo loan or a loan for a second home or investment property.

At a glance: The current single-family conforming loan limit for most counties in California State is $766,500 (an increase over the 2023 cap of $726,200). In the more expensive California-area counties of LOS ANGELES, CONTRA COSTA, ORANGE , the single-family loan limit has been increased to $1,149,825 for 2024.

In considering your application, they look at a variety of factors, including your credit history, income and any outstanding debts. This important step in the process focuses on the three C's of underwriting — credit, capacity and collateral.

Conventional (conforming)

Loan amount must be $766,550 or less in most counties and may be as high as $1,149,825 in high-cost counties.

The Bottom Line: Conforming Loans Offer Greater Consumer Protections And Lower Interest Rates. Many consumers benefit from conforming mortgages because of the lower rates and fees and the stability of the loan.

Conforming loans generally offer lower interest rates and fairly rigid qualifying criteria, while nonconforming loans may have higher rates and more flexible credit requirements.