What does the term ‘conforming’ mean?

Q: What does the term "conforming" mean?  Is it the same as an adjustable-rate mortgage?

A: Simply put, a "conforming" mortgage "conforms" to a set of standards so that the loan can be eligible to be sold to the two government-sponsored enterprises called Fannie Mae or Freddie Mac.

These standards allow these mortgages to be more easily bundled into mortgage-backed securities (MBS) and sold to investors. Since the characteristics of each loan in the MBS are similar to one another, investors can set certain expectations as to how the investment will perform. Among other things, this helps reduce risk and makes it possible to offer borrowers lower rates.

These "conforming" standards include:

  • Amount of the mortgage
  • Type of property
  • Borrower's credit score
  • Verified borrower documentation
  • If there is less than a 20 percent down payment, a private mortgage insurance policy must be attached to the loan
  •  Loan term (and a number of other items) 

Loans that don't meet these requirements in one form or another are called "non-conforming", which includes large loans ("jumbo mortgages") and loans with different features or risks. At the moment, only a very small component of the market is made up of these non-conforming loans.

Adjustable-rate mortgages can be conforming or non-conforming.

Ask the expert
Keith Gumbinger
Keith Gumbinger
Mortgage Expert
Vice President, HSH.com
About Keith: Mortgage market observer and analyst with 35 years experience... (more)
Submitting your question...

Question received! Check back later to see if your
question gets published.

Q: How many times can I use my VA home loan?
OCT 31, 2019
A:

There are three ways you can restore your VA eligibility so that you can take advantage of it more than once.

Read More
Q: Can my lender ask me why I'm buying a specific home?
NOV 06, 2018
A:

Lenders can ask you why you are buying a specific home because there are different lending rules for different types of properties.

Read More
Q: Does the VA allow "asset depletion" mortgages?
SEP 20, 2018
A:

Can you use private-sector retirement income and savings to help qualify for a VA-backed mortgage?

Read More