A guide: Conforming versus non-conforming home loans

When shopping for a conventional mortgage, one of the first distinctions you'll encounter is whether a loan is conforming or non-conforming. Although these terms may be unfamiliar to many homebuyers, knowing what they mean and what's best for you can make all the difference.

The two categories of conforming versus non-conforming define the parameters, costs and eligibility requirements for your mortgage. The classification hinges on whether a loan meets the standardized criteria set by the Federal Housing Finance Agency (FHFA), as well as whether or not government-sponsored enterprises (GSEs) like Fannie Mae and Freddie Mac can purchase the loan.

Understanding the difference between conforming and non-conforming loans can help you make smarter financial decisions—especially when it comes to interest rates, loan terms and your overall buying power, said Kurt Morris, home loans product strategy manager at BOK Financial®. He gave a brief overview of each category:

Conforming loans
A conforming loan meets specific FHFA criteria, including loan limits, borrower credit standards, debt-to-income ratios and documentation requirements.

“One of the key factors of a conforming loan is that it can be sold to Fannie Mae or Freddie Mac, which adds liquidity to the mortgage market and typically results in more favorable rates for borrowers,” said Morris.

According to Morris, key features of conforming loans include:

• Loan amount limits: The loan limit for 2025 is $806,500 in most parts of the country. In high-cost areas it may go up to $1,209,750.
• Credit score requirements: Borrowers typically need a credit score of 620 or higher.
• Debt-to-income ratio: Usually capped at around 45%.
• Documentation: Full documentation of income, employment and assets is required.

“Because these loans follow a standard set of guidelines, they are considered lower risk and come with some perks,” said Morris.

Key benefits include:

• Lower interest rates: These loans often have lower interest rates than non-conforming options.
• Broad accessibility: These loans are widely available through many lenders, including banks and credit unions.
• Versatility: Available for primary residences, investment properties and second homes.

Morris explained there are two main types of conforming loans:

1. Fixed-rate mortgages
These offer a consistent interest rate and monthly payment over the life of the loan-typically 15, 20 or 30 years. Fixed-rate loans are ideal for borrowers who plan to stay in the home long-term and prefer stable loan payments that won't change over time.

2. Adjustable-rate mortgages (ARMs)
These start with a lower fixed interest rate for a set number of years and then adjust semi-annually based on market conditions. ARMs can be attractive for buyers who plan to move or refinance before the adjustable period kicks in.

Non-conforming loans
A non-conforming loan, as the name implies, does not meet the guidelines set by the FHFA. Non-conforming loans are considered riskier for lenders because they cannot be sold to GSEs, making them harder to sell, Morris explained. Because of this, they often come with stricter qualification criteria, higher interest rates and higher down payment requirements-but they also offer more flexibility.

According to Morris, non-conforming loans provide the flexibility and capacity many buyers need when dealing with luxury homes, complex financial profiles or unique property types.

Reasons a loan may be non-conforming:

• The loan amount is higher than the conforming limit, which is often the case with expensive markets or luxury real estate.
• The borrower has a lower credit score or higher debt-to-income ratio than conforming standards allow.
• The property is non-traditional, such as a multi-unit dwelling or condo-hotel.
• The borrower uses alternative income verification or has irregular income. Some non-conforming mortgage loan products cater to self-employed borrowers or those with significant assets.

Types of non-conforming loans
1. Jumbo loans
Jumbo loans can have either fixed or adjustable interest rates and are commonly used to purchase high-cost properties that exceed the conforming limit.

"Some lenders, like BOK Financial, offer tailored jumbo home loan solutions for high-value properties with loan amounts up to $10 million," said Morris. "In unique cases like these, it's important to work with a trusted mortgage banker along with a team of specialty underwriters and processors who can create a custom loan structure to meet the unique borrower needs."

2. Non-QM (non-qualified mortgages) and alt-doc loans
Non-QM mortgages cater to borrowers who don't meet traditional documentation standards, such as self-employed individuals or those with inconsistent income sources. While these loans are less common, they offer crucial options for otherwise qualified buyers.

“With expert guidance and tailored solutions, a good lender helps ensure that your mortgage supports not just your homeownership dreams, but your larger financial goals as well,” Morris said.

Understanding the difference between conforming and non-conforming loans empowers you to shop with confidence and prepare your finances accordingly. Whether you're purchasing your first home, a vacation retreat or a luxury estate, the structure of your mortgage can make a significant impact on affordability, long-term costs, and investment potential.