What is a conforming loan?

A conforming loan is defined as a mortgage that meets the specific criteria set by government-sponsored entities (GSEs) such as Fannie Mae and Freddie Mac. These criteria include limits on the loan amount, which are established annually, as well as guidelines for borrower creditworthiness, debt-to-income ratios, and documentation. Conforming loans are designed to ensure that they can be sold in the secondary mortgage market, thus providing lenders with liquidity and helping to stabilize the mortgage market. By adhering to these established standards, conforming loans allow borrowers to enjoy more favorable interest rates and terms compared to non-conforming loans.

The other options do not accurately define a conforming loan. Loans that exceed federal limits for lending would not be considered conforming, and a loan available only to first-time homebuyers or a type of personal loan unrelated to mortgages does not align with the established criteria of conforming loans.