Ask the Expert: What is a conforming loan?

A conforming loan conforms to Fannie Mae and Freddie Mac guidelines. Fannie Mae and Freddie Mac are giant government-chartered mortgage companies that buy loans from lenders, giving lenders more flexibility to make new housing loans.

Most everyone who gets a mortgage has a conforming loan.

A non-conforming loan, by contrast, goes over the loan limit, and the requirements are stricter. Credit scores must be higher. The down payment must be higher. The debt-to-income ratio must be lower. Generally, the borrower shows high cash reserves.

In 2023, the limit for conforming loans has gone up.

The baseline for a conforming loan in 2023 will be $726,200, up $79,000 from the 2022 limit of $647,200. In higher-cost areas, the conforming limit will be even higher for 2023, up to $1,089,300 from $970,800 in 2022. This is good news since more homeowners will be able to qualify for loans that are less expensive and have lower requirements.

The Federal Housing Finance Agency made the changes because home prices were still climbing in the third quarter of 2022 compared to 2021, but the increase in the loan limit was smaller than in 2022 because price growth has slowed.

Conforming loan requirements

Loan-to-value ratio: Your down payment has to be equal to 20 percent or more of the home’s value, but buyers can qualify for an FHA loan with as little as 3 percent down. With a down payment of less than 20 percent, buyers have to pay Private Mortgage Insurance, which can be expensive.

Credit score: A conforming loan requires a FICO credit score of 620-640. However, an FHA loan requires a credit score of 580. A lower credit score than that requires a higher down payment.
Debt-to-income ratio: Your debt-to-income ratio must be below 43 percent (although exceptions may raise this percentage) of your gross income.