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Family sitting on the sofa in the living room.

Back in my 11th grade English class, we used to have these weekly vocabulary quizzes. To make them interesting, I tried to relate everything to a theme.

There’s a lot of unfamiliar vocabulary in the mortgage process, and it’s important to know your terminology. For example, construction of the Batcave was probably too expensive for Bruce Wayne to get a conforming loan, not that the multi-billionaire founder of Wayne Enterprises needs one, but I digress.

If you’re looking to buy or refinance a home, it’s important to understand some of this mortgage lingo. What’s the difference between a conforming and a non-conforming loan? What are the benefits of each?

What Is A Conforming Loan?

A conforming loan is one that meets the requirements to be sold to Fannie Mae or Freddie Mac. To understand what Fannie and Freddie do, let’s take a step back.

Sometimes banks hold on to your loan for 15 or 30 years, depending on your loan term. They make the money back every month when they collect your payments. This isn’t very common anymore.

What usually happens now is that your loan is sold to one of the major mortgage investors within a couple of months of closing. This allows lenders to have stable cash flow, so they can write new loans and get more qualified buyers into more homes. You may still send your payments to your lender if they service your loan. Quicken Loans® services the majority of the loans it originates.

The rules for Fannie Mae and Freddie Mac are set by the Federal Housing Finance Agency (FHFA). Other major mortgage investors include the FHA and VA. Although these loans are backed by the federal government and have their own lending guidelines, when a lender refers to a conforming loan, they’re talking about conventional loans backed by Fannie Mae or Freddie Mac.

Loan Limits

The first big difference between a conforming and a non-conforming loan is the loan’s limits.

The maximum amount on a regular loan for a one-unit property is generally $548,250 in the lower 48 states. It’s $822,375 for Alaska and Hawaii. The higher figure also serves as the upper loan limit in high-cost counties.

Higher limits apply in high-cost counties. In these counties, you can get a high-balance mortgage up to the county limit. In no instance will the mortgage amount you can get for a one-unit property be higher than $822,375 on a conforming loan. If you’re buying a multi-unit home, higher limits do apply.

Anything above county limits is a jumbo loan. Jumbo loans have higher loan limits, and slightly different guidelines because the mortgage can’t be sold to Fannie Mae or Freddie Mac and pushes into non-conforming territory.

Conforming Loan Guidelines

In addition to the loan limit restrictions, you must meet certain other requirements in order to get a conforming loan.

You have to meet the credit guidelines of the agency that’s buying the loan. For conventional loans, Fannie Mae and Freddie Mac accept a median FICO® Score of 620 or higher.

There are also items like property guidelines and income restrictions that impact whether you qualify for certain loans, but the nitty-gritty details of individual loan options are beyond the scope of this post. A Home Loan Expert will work to find the best option for you.

Benefits of Conforming Loans

Conforming loans have well-defined guidance and because of that, the risk factors for various loans are well-understood. There are several programs catering to different types of buyers. While lenders will have slightly different standards, the conforming loan options offered are available from many different lenders, so you can really shop around for a lender who you’re comfortable with and who can match you with the right loan option to meet your goals.

Although these are general statements and every situation is different, the following are benefits of conforming loans.

  • For loans with standard limits, you may be able to get a lower rate than you could with a non-conforming loan
  • Although there’s some variation, the qualification standards are pretty well defined across lenders

What Is a Non-Conforming Loan?

Non-conforming loans are loans that aren’t bought by Fannie Mae or Freddie Mac. Non-conforming loans break down into a few different categories.

Government Loans

Government loans are backed by the federal government. When we speak of these loans, mortgage lenders are referring to those created by the FHA, USDA and VA.

These loans each have their own benefits. For example, with an FHA loan, those with a sufficiently low debt-to-income ratio (DTI) can qualify with a median FICO® Score of 580 or higher. If you have a credit score of 620 or higher, you can often afford more home or take out more equity because you can qualify with a slightly higher DTI than you might be able to on similar conventional loans. You will also only need a 3.5% down payment.

Here’s much more on the guidelines and benefits of FHA loans.

USDA loans are intended for those in rural areas or on the outskirts of the suburbs. There are a couple of big benefits to a USDA loan.

  • No down payment required
  • Lower mortgage insurance than FHA

Quicken Loans doesn’t offer USDA loans at this time, but it’s not uncommon for lenders to require everyone on the loan have a median FICO® Score of 640 to get a USDA loan. In addition to needing to be in a qualifying area, the USDA also states that your household income must be below 115% of the area median.

VA loans are available for eligible active-duty servicemembers, reservists, veterans and surviving spouses of those who passed in action or as a result of a service-connected disability. There are three major advantages to a VA loan:

  • There’s no down payment required and with a 680 median FICO® Score, you can even convert all of your home value into cash
  • Instead of mortgage insurance, there’s a one-time funding fee. You are exempt from the funding fee if you’re an active-duty service member who has received a Purple Heart, are a surviving spouse or someone who receives VA disability.
  • For those that qualify, these are often some of the best interest rates you can get

Other than service time requirements, the other thing to be aware of when getting a VA loan is your credit. Although the VA doesn’t set specific minimums, lenders may set their own policies. Quicken Loans requires a median FICO® Score of 620 for all clients on the loan.

Jumbo Loans

Another common type of non-conforming loan is a jumbo loan, which comes with higher loan limits. At Quicken Loans, we do loans with limits of up to $2.5 million.

The good news is they typically come with similar rates to any other loan. There are just a couple of things you need to know.

  • Your DTI has to be lower than it would be on a regular loan (45% is our starting point)
  • You’ll need a down payment of at least 10.01%, maybe more depending on the loan amount and your credit score
  • We require a minimum median FICO® Score of 700 for loans up to $1 million. Higher loan limits will have more stringent credit requirements.
  • Your lender may require additional documentation due to the size of the loan

Everything Else

Beyond government and jumbo, there are other types of nonconforming loans. These may enable someone to buy a piece of property that they otherwise couldn’t with a conforming loan. Sometimes a non-conforming loan may help someone with a derogatory credit item such as a recent bankruptcy, although they’ll likely have to pay a higher rate in order to compensate for the additional risk.

Lastly, a lender may offer a non-conforming loan in order to tailor a product for the benefit of clients who are well-qualified in order to meet their unique goals.

Benefits of Non-Conforming Loans

When it comes to non-conforming loans, there are three big benefits:

  • Higher loan amounts available in the case of jumbo loans
  • Depending on the loan option, you might be able to buy different types of property than you could with a standard conforming loan
  • You might be able to get a non-conforming loan if you have a negative mark on your credit like a recent bankruptcy

As always, talk to your lender regarding specific requirements.

Are you ready to buy a home or refinance your existing one? You can get started online with Rocket Mortgage® by Quicken Loans. One of our Home Loan Experts would also be happy to speak with you at (800) 785-4788.

Still have questions about conforming and non-conforming loans? We’ll be happy to answer them in the comments below.

This Post Has 26 Comments

  1. Generally Jumbo rates are lower rates than conforming. While Quicken jumbo loans are ones over $726,525 in high cost areas, consumers can save in those areas, by shopping with lenders whose Jumbos exceed $484,350.

    1. Hi Matt:

      I think you’re misunderstanding the point made in this article. While $726,525 is the highest any conforming loan can be, in high-cost counties, limits are set on a county by county basis. So they can be lower than $726,525 but it’s higher than the standard conforming limit of $484,350. You are correct that you rates are often lower on jumbo loans.

  2. I am retired w $48000 annual income and a few thousand in other? My expenses are low but I have approximately $65000 in debt due to divorce. I have a $100,000 HELOC. Total Debt $170000 w/ HELOC The high interest on the $70000 is problematic. I have an excellent record of on time payments dating back decades. My home is on the tax rolls at app. $460000. Could I qualify for a $180000 loan. My DTI w/ such a mortgage/taxes 43%/

    1. Hi Floyd:

      I’m not licensed to determine whether you’re qualified. That being said, we can certainly look into your options to do a cash-out refinance and roll in that HELOC. If you want to get started online, you can do so through Rocket Mortgage. Otherwise one of our Home Loan Experts will be happy to speak with you at (888) 980-6716. Hope this helps!


  3. My home is worth about $700,000. I owe approx $192,000 on 1st + $140,000 HELOC which ends 2018 and payment is alot higher than I currently pay. I want to refinance and combine the two, but my problem is my debt-income ratio is high. My credit score is around 740-750. I have approx $25,000. 00 cc debt. I have never been late on any payment. I do have additional income (my son pays me approx $900 a month rent for living here) but not shown in my taxes. Have talked to my bank and a broker. Broker suggests a reverse mortgage which I DO NOT want. Mortgage and HELOC are held by different banks. HELOC banker says I should refinance my HELOC with a co-signer, which I don’t really want to commit anyone else. So is there absolutely NO help for me, in your expert opinion?? Oh yeah, also my income is low. I am a retiree working part-time and my last income per my taxes was $36,000. I currently pay approx $1400 on my first, which includes taxes and insurance. I curretnly pay $400 on HELOC, but going to about $1200 in 2018.

    1. Hi Alicia:

      There’s a lot of detail there. We do offer mortgages that combine HELOC’s with a first mortgage. In terms of whether we can help you, one of our Home Loan Experts can give you a lot better advice than I can in the comments. They would be licensed in your state and can really go over all of your options. You can get in touch with them at (888) 980-6716 and they would be happy to talk to you.

      Hope this helps,
      Kevin Graham

    2. You migh consider paying off the CC debt when you combine the 2 to gt your CC debt down. You’ll be able to write off the interest and pay the debt off faster. Also most lender will “Gross up” fixed income to 125% when calculating your DTI.

  4. We are in the process of obtaining a construction loan, our down payment consists of the land value and a 401k withdrawal to get to 20% down. My credit score is 721 and my husbands is 789. We were told due to late payments on store credit cards they can only approve us for a nonconventional loan with a .5% higher interest rate. So, even though we have good credit scores, no other credit issues and 20% down, we wouldn’t qualify for the best interest rates?

    1. Hi Melissa:

      We don’t do construction loans, so I can’t speak to whether there is anything specifically different about those loans. That being said, late payments are absolutely something mortgage lenders really take a look at in terms of relative risk when approving you. If you’ve had late payments, particularly in the last year or two, lenders may see that as an increased risk. You may be able to get a loan, but it’s not uncommon for it to come with a higher interest rate. I know that’s not the answer you want, but this should at least give you a better idea of where you stand.

      Kevin Graham

  5. My FICO is 791
    Credit score around 780
    I’ve always worked as an independent contractor. My tax returns show low payments and low income (for tax purposes). My car will be paid off this year, never missed a CC payment.

    Since im not a full time employee and have my own business (freelancing/consulting) how can I prove my income. I don’t have a steady pay. Some months its high others its low. And most of the time i get paid cash/checks so I don’t have to pay a lot of taxes… How can i prove my income? would that be an issue?


    1. Hi Rima:

      I’m going to recommend you speak with one of our Home Loan Experts because we may have options to qualify you based on balance-loss sheets and other documentation. Every situation is different. You can get in touch with us by calling (888) 980-6716. Hope this helps!

      Kevin Graham

  6. I am wondering if QL will do a non-conforming conventional loan if I have a short sale on my record. It was just over a year ago and we are wanting to buy a house about the 1 1/2 year mark after. We have good credit 725 and a DTI of 10%. We went with the short sale for 2 reasons: 1) delinquency due to financial hardship due to sudden medical expenses and other family circumstances and 2) it was underwater. Is there any room for negotiation on the amount of down payment to be able to establish a mortgage?

    1. Hi Trevor:

      I’m certainly glad to hear you’re getting back on your feet. We may have some options for you around buying after your short sale. I think the best thing to do next would be to get in contact with one of our Home Loan Experts by filling out this form or calling (888) 728-4702. They can also go over what the down payment would look like with you.

      Kevin Graham

  7. i am trying to refinance my $600,000 mortgage, and while i have an ok credit, i am making aprox. $140,000 yearly but, i can only demonstrate through my statement, because my tax return show a loss… how can i handle that?

    1. Hi GPM:

      We do require both tax returns and bank statements. However, showing a loss would not automatically disqualify you. I’m going to recommend you speak with one of our Home Loan Experts by filling out this form or calling 888-728-4702.

      Kevin Graham

    1. Hi Chiedu:

      That really depends on the reason you’re getting a nonconforming loan. Jumbo loans for more expensive properties are considered nonconforming loans, but they carry similar rates to conforming loans. If on the other hand, you’re getting a nonconforming loan because of a detrimental factor like a poor credit, your interest rate could very well be higher because those loans carry increased risk for the lender. Hope this helps!

      Kevin Graham

  8. Hello, if I don’t have a credit score (not bad credit, but no credit at all) can I get a manually under-written 15-yr loan and avoid paying pmi if I have 30% down and the monthly payment is well below 25% of my take home pay?

    1. Hi John:

      Unfortunately, we don’t do manual underwrites for clients without credit. If you would like to start building credit, I recommend taking a look at this blog post. Our friends at QLCredit have plenty of resources as well in terms of credit tips.

      1. Why in the world would Quicken Loans® not want to loan money to people who are smart enough to stay out of debt? Seems like John would be a great person to give a loan to, he has nobody else to pay but you!

        1. Hi Jim:

          We strive to loan money to people who have shown a history of responsible debt management. We certainly encourage people to keep their debt as low as possible. However, credit is a key indicator for lenders and mortgage investors of ability to manage a monthly house payment. We must have some record of past credit history in order to evaluate potential clients. I hope this helps answer your question!

          Kevin Graham

    1. Hi Shelly:

      Joe Sabatini is one of our executive power bankers. You’re in good hands! Thanks for checking!

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