United States
Hong KongConventional against government loans
Conventional means not government-insured or guaranteed. Conforming means it meets the standards for purchase by the government-sponsored enterprises, including the annual loan limit. The two words are not synonyms.
Four words that get used interchangeably in conversation and mean four different things on the exam.
Conventional
A loan not insured or guaranteed by a government program. That is the whole definition.
It says nothing about size, about who buys the loan afterwards, or about the borrower's credit.
Conforming
A conventional loan meeting the standards for purchase by the government-sponsored enterprises, including the annual loan limit set by the Federal Housing Finance Agency.
So every conforming loan is conventional. Not every conventional loan is conforming.
The Federal Housing Finance Agency resets it annually and it has moved in every recent year. Know who sets it and that it changes. A figure memorized from last year's course material will be wrong.
Non-conforming and jumbo
Non-conforming means a conventional loan that does not meet those standards, for any reason - size, documentation, credit or property type.
Jumbo is the subset that fails on size alone, exceeding the conforming limit. All jumbo loans are non-conforming; not all non-conforming loans are jumbo.
The government programs
FHA insures. VA guarantees. USDA guarantees within its program. None of them is conventional, and the words insure and guarantee are not interchangeable either.
| Term | Means |
|---|---|
| Conventional | Not government insured or guaranteed |
| Conforming | Meets GSE purchase standards including the limit |
| Non-conforming | Conventional but outside those standards |
| Jumbo | Non-conforming because it exceeds the limit |
Common questions
What is a conventional loan?
One not insured or guaranteed by a government program.
What is the difference between conventional and conforming?
Conventional means not government-backed. Conforming means it also meets the standards for purchase by the government-sponsored enterprises, including the annual limit.
What is a jumbo loan?
A non-conforming loan that exceeds the conforming loan limit.
Who sets the conforming loan limit?
The Federal Housing Finance Agency, annually.
Is every non-conforming loan jumbo?
No. A loan can be non-conforming for documentation, credit or property reasons without being large.