Any type of mortgage loan that adheres to loan amount limits set by Fannie Mae or Freddie Mac. These conforming limits allow lenders to fund loans with interest rates 0.25 – 1.5% lower than what a buyer would otherwise pay. The standards are re-evaluated each year based on changes in average home prices from the previous year and can vary by state.
Loans that are too big to conform to Fannie Mae and Freddie Mac limits are also known as jumbo mortgages. Most types of conventional loans conform, but jumbo mortgages are non-conforming and have higher interest rates because they rely on the investment backing from outside investors as opposed to the government-sponsored institutions Fannie Mae or Freddie Mac.