A conforming loan is a mortgage that is below the conforming loan limit established by the Federal Housing Finance Agency (FHFA) and abides by other restrictions of Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Corporation). These federally backed agencies do not issue loans, but they are responsible for insuring loans for single-family dwellings and stimulating the resale of packaged housing loans on secondary markets. In doing so, these agencies reduce the risk to creditors, driving down interest rates for home loans. These agencies were established in response to deficient housing loans for low to middle class citizens, and the FHFA established a conforming loan limit so that these agencies would not expend resources on upscale houses. The cap is adjusted every year based on a variety of factors, but the limit as of 2021 is $548,250 for most of America. Some higher cost areas such as San Francisco or Alaska receive higher limits up to $822,375.
[Last updated in June of 2021 by the Wex Definitions Team]