What does it mean if a loan is described as "conforming"?

A loan described as "conforming" means that it meets the specific requirements and standards set by government-sponsored enterprises (GSEs) such as Fannie Mae and Freddie Mac. These standards include limits on the loan amount, borrower creditworthiness, and certain other underwriting criteria. By conforming to these guidelines, the loan is eligible for purchase by these agencies, which provides liquidity in the mortgage market and allows lenders to offer better rates to consumers.

In contrast, the other options describe characteristics that do not define a conforming loan. For example, while conforming loans are often associated with primary residences, they can also apply to second homes and investment properties, depending on the specific guidelines. Fixed interest rates are common but not exclusive to conforming loans, as variable-rate loans can also conform to GSE standards. Additionally, there is no requirement that conforming loans must be paid off within a specific term of 10 years; they can have various repayment periods, typically up to 30 years for fixed-rate mortgages. Thus, the defining aspect of a conforming loan rests on its adherence to the standards established by Fannie Mae and Freddie Mac.