Conforming vs. Non-Conforming: How 2025 Loan Limits Shape Your Conventional Mortgage Options

The distinction between conforming and non-conforming loans is fundamental to understanding conventional mortgage financing. Conforming loans meet Fannie Mae and Freddie Mac standards—including staying within FHFA loan limits ($766,550 baseline for 2025, up to $1,149,825 in high-cost areas)—which allows them to be sold to these government-sponsored enterprises. Non-conforming loans either exceed these limits or fail to meet underwriting standards, requiring portfolio lending with stricter requirements and typically higher rates.

Understanding whether your loan is conforming or non-conforming affects everything: interest rates, down payment expectations, qualification requirements, and long-term affordability.

In this guide, we’ll explain what makes a loan conforming vs non-conforming, how 2025 loan limits shape these categories, and what it means for your mortgage strategy.

What Is a Conforming Loan?

A conforming loan is a conventional mortgage that meets all Fannie Mae and Freddie Mac standards, including:

1. Loan amount within FHFA limits

   • Baseline: $766,550 (2025) for most counties
   • High-cost areas: Up to $1,149,825 (2025)

2. Credit and income standards

   • Minimum 620 credit score (typically)
   • Verifiable income and employment
   • Maximum debt-to-income ratio of 43-45%

3. Property and appraisal requirements

   • Acceptable property types (primary residence, second home, investment)
   • Proper appraisal meeting USPAP standards

4. Documentation standards

   • Full income documentation (W-2s, tax returns, pay stubs)
   • Asset verification for down payment and reserves

Because conforming loans can be sold to Fannie Mae or Freddie Mac, lenders face less risk—which translates to lower interest rates and easier qualification compared to non-conforming loans.

What Is a Non-Conforming Loan?

A non-conforming loan is a conventional mortgage that does not meet Fannie Mae and Freddie Mac standards. Non-conforming loans fall into two main categories:

1. Jumbo Loans (Exceed Loan Limits)

Jumbo loans exceed the conforming loan limits for a given county. For example:

• A $900,000 loan in a county with a $766,550 limit is a jumbo loan
• A $1.2 million loan in a high-cost county with a $1,149,825 limit is a jumbo loan

Jumbo loans require stricter qualification—higher credit scores, larger down payments, more reserves—and typically carry interest rates 0.25% to 0.75% higher than conforming loans.

2. Portfolio Loans (Fail Underwriting Standards)

Portfolio loans fail to meet Fannie Mae/Freddie Mac underwriting standards for reasons other than loan amount, such as:

• Credit score below 620
• Non-traditional income (bank statements, asset depletion, stated income)
• High debt-to-income ratios (above 45-50%)
• Non-warrantable condos or unique properties
• Recent credit events (bankruptcy, foreclosure, short sale)

Portfolio lenders hold these loans in their own portfolios (or sell them to private investors), which increases risk and results in higher rates, larger down payments, and more stringent terms.

How 2025 Loan Limits Define Conforming vs Non-Conforming

The FHFA adjusts conforming loan limits annually based on national median home price changes. For 2025:

Baseline Conforming Limits (Most Counties)

• Single-family home: $766,550
• Two-unit property: $981,500
• Three-unit property: $1,186,350
• Four-unit property: $1,474,400

High-Cost Area Conforming Limits

• Single-family home: $1,149,825
• Two-unit property: $1,472,250
• Three-unit property: $1,779,525
• Four-unit property: $2,211,600

Any loan amount exceeding these limits is considered non-conforming (jumbo) for that county.

Check your specific county’s conforming loan limit through Browse Lenders or the FHFA’s official loan limit lookup tool.

Conforming vs Non-Conforming: Side-by-Side Comparison

Real-Life Example: Conforming vs Non-Conforming Scenarios

Scenario 1: Conforming Loan (San Diego County)

• Purchase price: $1,000,000
• Down payment: $150,000 (15%)
• Loan amount: $850,000
• County conforming limit: $1,149,825 (high-cost area)
• Loan type: High-balance conforming
• Interest rate: 6.625% (estimated)
• Qualification: 700+ credit, 6 months reserves, 43% DTI

Because the loan amount ($850,000) is within San Diego County’s conforming limit ($1,149,825), this is a conforming loan—even though it exceeds the baseline limit ($766,550). The borrower qualifies for conforming rates and standardized underwriting.

Scenario 2: Non-Conforming Jumbo Loan (Same County)

• Purchase price: $1.5 million
• Down payment: $225,000 (15%)
• Loan amount: $1,275,000
• County conforming limit: $1,149,825
• Loan type: Jumbo (non-conforming)
• Interest rate: 7.00% (estimated)
• Qualification: 740+ credit, 12-24 months reserves, 36% DTI

Because the loan amount ($1,275,000) exceeds the conforming limit ($1,149,825), this is a non-conforming jumbo loan—requiring stricter qualification, more reserves, and higher interest rates.

Rate difference: 0.375% translates to approximately $4,500/year or $135,000 over 30 years in extra interest costs.

Scenario 3: Non-Conforming Portfolio Loan (Baseline County)

• Purchase price: $600,000
• Down payment: $120,000 (20%)
• Loan amount: $480,000 (well within $766,550 limit)
• Credit score: 580
• Loan type: Portfolio non-conforming (fails credit standards)
• Interest rate: 8.50% (estimated)
• Qualification: 25% down, 12 months reserves, 36% DTI

Even though the loan amount is well within conforming limits, the borrower’s 580 credit score disqualifies them from Fannie Mae/Freddie Mac underwriting. This forces them into non-conforming portfolio lending with much higher rates.

Interest Rate Impact: Conforming vs Non-Conforming

The interest rate difference between conforming and non-conforming loans is substantial—often 0.25% to 1.50% depending on the specific risk profile.

Example: $800,000 Loan Amount

Savings with conforming vs portfolio loan: $1,090/month, $393,000 over 30 years

This dramatic difference makes staying within conforming standards—both loan limits and underwriting guidelines—financially essential whenever possible.

How Credit Scores Affect Conforming vs Non-Conforming Status

Your middle credit score determines whether you qualify for conforming financing and what rates you’ll receive.

Conforming Loan Credit Tiers

• 740+: Best conforming rates, minimal loan-level price adjustments (LLPAs)
• 700-739: Competitive conforming rates, moderate LLPAs
• 660-699: Higher conforming rates due to increased LLPAs
• 620-659: Highest conforming rates, limited program options
• Below 620: Cannot qualify for conforming loans (must use non-conforming portfolio lending)

Non-Conforming Portfolio Loan Credit Tiers

• 600-619: Portfolio options available with higher rates, larger down payments
• 580-599: Limited portfolio options, significantly higher rates
• 550-579: Very limited portfolio options, 25-35% down required
• Below 550: Extremely limited options, subprime lending territory

Improving your credit score from 610 to 650 can move you from non-conforming portfolio lending to conforming financing—saving tens of thousands of dollars in interest over the life of your loan.

Strategies to Qualify for Conforming Loans (Avoid Non-Conforming)

1. Stay Within Your County’s Loan Limits

Before house hunting, check your county’s conforming loan limit. If it’s $766,550 and you’re approved for 20% down, target homes under $958,000 to stay within conforming financing.

If you’re in a high-cost county with a $1,149,825 limit, you can purchase homes up to $1.4 million with 20% down while staying conforming.

2. Improve Your Credit Score to 620+

If your middle credit score is below 620, focus on credit improvement before applying for a mortgage:

• Pay down credit card balances to improve utilization
• Dispute credit report errors that may be lowering your score
• Make all payments on time for at least 12 months
• Avoid new credit applications within 90 days of mortgage application

Even a 20-30 point increase can move you from non-conforming portfolio lending to conforming financing with dramatically better rates.

3. Lower Your Debt-to-Income Ratio Below 43%

If your DTI is above 43%, you may be forced into non-conforming portfolio lending even if your loan amount is within conforming limits. Strategies to lower DTI:

• Pay off small debts (car loans, student loans, credit cards)
• Increase your income through raises, bonuses, or side income (must be documented)
• Co-borrow with a spouse or family member to increase household income

4. Use Alternative Conforming Programs

If you’re close to conforming qualification but not quite there, consider:

• Fannie Mae HomeReady (allows 3% down, flexible income sources)
• Freddie Mac Home Possible (3% down, income-based eligibility)
• High-balance conforming loans (in high-cost counties, slightly stricter than baseline conforming but still better than jumbo)

5. Increase Your Down Payment to Stay Within Limits

If your loan amount exceeds conforming limits by $20,000 or $50,000, increasing your down payment to stay within conforming limits may save more money (through lower rates) than keeping cash liquid.

Model both scenarios to determine which offers better long-term value.

Common Non-Conforming Loan Types

Jumbo Loans

• Loan amounts: Exceed conforming limits by county
• Typical rates: 0.25%-0.75% higher than conforming
• Requirements: 700-740+ credit, 15-30% down, 12-24 months reserves

Bank Statement Loans

• Income verification: 12-24 months of bank statements (for self-employed borrowers)
• Typical rates: 1.00%-2.00% higher than conforming
• Requirements: 10-25% down, 680+ credit typical

Asset Depletion Loans

• Income verification: Based on liquid assets (retirement accounts, investments)
• Typical rates: 1.00%-1.50% higher than conforming
• Requirements: Significant assets, 20-30% down

Non-QM Loans (Non-Qualified Mortgages)

• Flexible underwriting: Alternative income documentation, higher DTI ratios
• Typical rates: 1.50%-3.00% higher than conforming
• Requirements: Varies by lender, often 20-35% down

These non-conforming options provide access to financing for borrowers who don’t meet traditional conforming standards—but they cost significantly more.

When Non-Conforming Loans Make Sense

Non-conforming loans are necessary when:

• Your loan amount exceeds your county’s conforming limit and you cannot increase your down payment
• You’re self-employed with non-traditional income that doesn’t meet Fannie Mae/Freddie Mac documentation standards
• Your credit score is below 620 and you need time to rebuild before qualifying for conforming financing
• You have recent credit events (bankruptcy, foreclosure, short sale) that disqualify you from conforming loans
• You’re buying a non-warrantable condo or unique property that doesn’t meet GSE standards

In these situations, non-conforming portfolio lending may be your only option—though rates and qualification will be stricter.

Refinancing from Non-Conforming to Conforming

Many borrowers start with non-conforming portfolio loans (due to credit challenges or unique circumstances) but later refinance to conforming loans once they meet GSE standards. This strategy can save tens of thousands of dollars in interest.

How to Transition from Non-Conforming to Conforming

1. Build 20% equity through payments and appreciation
2. Improve your credit score to 620+ (ideally 700+)
3. Establish 12-24 months of on-time payments on your current mortgage
4. Lower your DTI below 43% through debt payoff or income increases
5. Refinance to a conforming loan to access lower rates and better terms

This transition is especially valuable if you started with an 8%+ portfolio loan and can refinance to a 6.50% conforming loan—saving $400-$600/month on a $500,000 loan.

Final Thoughts: Conforming Loans Offer the Best Value

For borrowers who meet conforming loan standards—staying within FHFA loan limits, maintaining 620+ credit scores, and meeting standard underwriting guidelines—conforming loans save tens of thousands to hundreds of thousands of dollars over non-conforming financing through lower rates, easier qualification, and standardized processes.

When non-conforming loans are necessary (due to loan amount, credit challenges, or unique income), shopping multiple lenders and planning a future refinance to conforming financing helps minimize long-term costs.

Connect with verified loan officers through Browse Lenders to understand your conforming vs non-conforming options, compare transparent rate quotes, and develop a strategy that maximizes your borrowing power while minimizing lifetime mortgage costs.

Understanding the conforming vs non-conforming distinction isn’t just about meeting guidelines—it’s about saving money and accessing the most competitive mortgage financing available in 2025.