What defines a conforming loan?

A conforming loan is defined as a mortgage that adheres to the specific guidelines set forth by government-sponsored enterprises (GSEs) such as Fannie Mae and Freddie Mac. These guidelines include criteria like loan amount limits, borrower credit scores, debt-to-income ratios, and documentation standards. By meeting these criteria, a conforming loan becomes eligible for purchase by these federal agencies, which helps provide stability and liquidity in the mortgage market.

The importance of conforming loans lies in their role in enabling borrowers to access the mortgage markets under standardized conditions, thereby promoting homeownership while maintaining certain lending standards. This option specifically highlights the connection between conforming loans and the requirements needed for federal agency purchase, which is a key differentiator in understanding what qualifies a loan as conforming.