Conforming vs. Conventional Loan: Which Is Better?

What Is a Conforming Loan?

A conforming loan is a mortgage that meets the guidelines set by Fannie Mae and Freddie Mac, the government-sponsored entities (GSEs) that buy most of the mortgage loans issued in the U.S.

These loans must stay within loan limits updated each year by the Federal Housing Finance Agency (FHFA) and must follow standardized underwriting rules. Because lenders can sell conforming loans to the GSEs, these loans are considered lower risk and often feature more competitive interest rates.

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Conforming Loan Requirements

Within the GSE guidelines, exact requirements for a conforming loan can vary by lender. However, you'll typically need to meet these criteria:

• Loan limits: Cannot exceed the conforming loan limit (CLL) set by the FHFA for the county where the property is located. For 2026, CLL for a single-family home in most of the country is $832,750, but loan amounts of up to $1,249,125 are considered conforming in higher-cost counties.
• Minimum credit score: Typically 620 or higher.
• Debt-to-income ratio (DTI): Your DTI is the percentage of your monthly pretax income that goes toward debt each month. Lenders typically prefer a debt-to-income ratio below 36%, but may allow up to 50% depending on your credit score and down payment.
• Down payment: As low as 3% for some programs; however, you must pay private mortgage insurance (PMI) premiums if your down payment is less than 20%.
• Property standards: The home must meet the GSEs' appraisal requirements and minimum standards for safety, condition and livability.

Learn more: How Do Fannie Mae and Freddie Mac Loans Work?

What Is a Conventional Loan?

A conventional loan is any mortgage that isn't guaranteed by a government program such as the Federal Housing Administration (FHA loans), Department of Veterans Affairs (VA loans) or Department of Agriculture (USDA loans).

Conventional loans are issued by private lenders or financial institutions and include both:

• Conforming loans that meet Fannie Mae and Freddie Mac rules
• Non-conforming loans that don't meet those rules, such as jumbo loans

Conventional Loan Requirements

The requirements for conventional loans depend on whether the loan is conforming or non-conforming. Conforming loan requirements are listed above. Non-conforming loans, such as jumbo loans or interest-only loans, expose lenders to more risk, so they usually have stricter requirements.

While specific requirements can vary by lender and loan type, non-conforming conventional loans typically have the following criteria:

• Minimum credit score: You generally need a better credit score than for conforming loans—often a minimum of 680 for interest-only loans and 700 for jumbo loans.
• Down payment: Down payments of 15% to 30% or more may be required.
• DTI: Maximum DTIs for non-conforming loans can vary by lender, but are typically lower than those for conforming loans.
• Cash reserves: Lenders may require cash reserves, such as assets or investments, that you can use to cover the mortgage payments if necessary.

Learn more: What Credit Score Do I Need to Buy a House?

What Type of Mortgage Loan Is Best?

The best type of mortgage loan for you depends on your finances, the price of the home you want and what mortgage options you're eligible for.

When a Conforming Conventional Loan Could Be Best

A conforming conventional loan can be the best option if:

• You're shopping for a home priced at or below the conforming loan limit for your area.
• You have good credit and sufficient income.
• You can make a down payment of at least 3%.
• Your DTI is 50% or less.
• You want a lower interest rate.

When a Government-Backed Loan Could Be Best

Government-backed mortgages are issued by private lenders but insured by the FHA, VA or USDA. A government-backed mortgage loan may work for you if:

• You and the property you're purchasing meet the program's eligibility requirements.
• Your credit score is making it difficult to get a conventional mortgage.
• You don't have a down payment, or want to make a low down payment.
• You want greater flexibility to use gift money as part of your down payment than conforming loans offer.

Be aware: Government-backed loans aren't always your most affordable option. They may have fees and interest rates that could cost you more over the life of a loan than you'd pay on a conventional mortgage.

When a Jumbo Loan Could Be Best

If you want to buy a home priced above conforming loan limits for your area, you'll likely need to investigate jumbo loans. A jumbo loan may be a good fit if:

• You have a credit score of 700 or more.
• You can afford a significant down payment.
• Your DTI is 43% or less.
• You can handle the larger payments and higher interest rate.
• You have cash reserves or other assets that can cover up to 12 months of loan payments.

Learn more: How to Lower Your Debt-to-Income Ratio Before Applying for a Loan

How to Apply for a Mortgage

Follow these steps to apply for a mortgage.

1. Check your credit. You can get a free copy of your credit reports from the three credit bureaus (Experian, TransUnion and Equifax) at AnnualCreditReport.com. Credit reports don't include your credit score, but you can use a premium Experian membership to monitor your credit reports and credit scores from all three bureaus. Based on what you learn, you can take steps to improve your credit scores if necessary.
2. Set a budget. Estimate how much home you can afford based on your income, expenses, down payment and other factors. Experian's free mortgage affordability calculator can help.
3. Compare loan types. Evaluating your budget, credit score, down payment, desired home price and eligibility will help you figure out what kind of mortgage might work best for you. Also consider whether you want a fixed-rate or adjustable-rate mortgage and what loan term you prefer.
4. Research lenders. You can search online for lenders who offer the type of loan you want, contact banks and credit unions or work with a mortgage broker to find potential lenders.
5. Get preapproved. Submitting mortgage preapproval applications with several lenders can help you find the best rates. Lenders will review your financial information and, if you're preapproved, issue a preapproval letter estimating the loan amount and terms they're willing to offer.
6. Apply for a mortgage. Once you've found the home you want to buy, you'll need to submit an official loan application with your chosen lender.
7. Close on the loan. When the loan underwriting process is complete and your loan is approved, you can sign your loan documents, pay your down payment and any closing costs, and move into your new home.

Learn more: How to Get a Mortgage: Complete Guide

The Bottom Line

Choosing the type of mortgage that best fits your budget, goals and credit profile can boost your odds of getting approved for a loan. Whether you opt for a conventional, conforming or non-conforming mortgage, having good credit can help you qualify for a lower interest rate.

As you work to improve or maintain your credit score during the home purchase process, consider signing up for free credit monitoring from Experian to track the progress of your credit score. You'll also get alerts of important changes to your credit, so you can quickly address potential issues that could affect your mortgage approval.