A conforming loan, on the other hand, is any loan that meets the criteria and limits set forth by Fannie Mae or Freddie Mac.
Fannie Mae and Freddie Mac are two of the biggest buyers of loans. These corporations don't deal directly with borrowers. Rather, when a home buyer gets a mortgage from a bank, Freddie Mac and Fannie Mae buys the loan from the bank and bundles it with other loans. Fannie Mae and Freddie Mac then sell the loans to investors, who make money off the interest rates homeowners pay on their mortgages. Fannie Mae and Freddie Mac then use the money they get from the sale of the loans to replenish funds and make more money available for other borrowers.
One type of non-conforming loan is a jumbo loan. A jumbo loan is a loan that is larger than $417,000. Because jumbo loans cannot be funded by Fannie Mae or Freddie Mac, they usually carry a higher interest rate.