What is Prime Conforming

Prime conforming is a sector of mortgage lending made up of loans to borrowers who are considered to be of a high credit quality.

BREAKING DOWN Prime Conforming

Prime conforming situations involve loans where the dollar amount of the mortgage is equal to or less than the conforming loan limits set by the Office of Federal Housing Enterprise Oversight (OFHEO).
Most prime conforming mortgages are considered conventional mortgages. A mortgage can be prime and below the conforming loan limits, but it will be considered non-conforming if it has certain characteristics, such as a negative amortization feature.

Since the borrowers who qualify for these loans are deemed to have “prime credit,” they are viewed to be a very low risk for lenders. As a result, lenders tend to offer the best rates and terms for these loans. The rates for these loans tend to be lower than average. In fact, prime conforming mortgages offer the lowest interest rates available to borrowers, except for the teaser rates that might be available on non-conforming mortgage products.

Prime Conforming Loan Characteristics

Prime conforming loans are a specific kind of mortgages that meet a combination of necessary characteristics.

The prime part of the term refers to the prime credit of the borrowers, while  conforming refers to the fact that these loans meet, or conform to, guidelines set by Fannie Mae and Freddie Mac, government-backed entities that package and sell mortgage loans. Conforming loans must be under a certain amount. As of 2018, that maximum amount is $679,650 but that upper limit only applies to certain high-cost areas of the United States. For the majority of the country, this limit for conforming loans is considerably less.

By contrast, a non-conforming loan is above the dollar amount limit for conforming loans. Non-conforming loans are sometimes also referred to as jumbo loans. Loans that don’t meet the standard criteria for a typical conforming loan in some way may also be categorized as a non-conforming loan.

A conforming loan has some benefits for borrowers. These loans are often easier to get and have lower interest rates, and may have more flexibility as far as the qualification criteria required by the lender to get approval. A non-conforming loan, on the other hand, presents more of a risk for lenders. As a result, they often impose tougher terms, such as a higher interest rate and a larger required down payment. Borrowers also usually need to have excellent credit to qualify for a non-conforming loan.