What is a conforming loan?

A conforming loan is defined as a mortgage that adheres to the specific guidelines established by Fannie Mae and Freddie Mac, two government-sponsored enterprises (GSEs). These guidelines cover various aspects of the loan, including loan limits, credit scores, debt-to-income ratios, and documentation requirements. By meeting these criteria, conforming loans can be easily bought and sold in the secondary mortgage market, which helps maintain liquidity and stability in the housing market.

This distinction is crucial for borrowers, as conforming loans typically offer lower interest rates and better terms compared to non-conforming loans, which may include higher rates due to increased risk. Understanding the definition and criteria for conforming loans is essential for both mortgage professionals and consumers when navigating the lending landscape.