What Is a Non-Conforming Mortgage?
Let me explain what a non-conforming mortgage is: it's a home loan that doesn't fit the rules set by government-sponsored enterprises like Fannie Mae and Freddie Mac, so it can't be sold to them. These rules cover things like the maximum loan size, the type of property, how much you need for a down payment, and your credit situation, among others.
You can think of it in contrast to a conforming mortgage, which does meet those guidelines.
Key Takeaways
Here's what you need to know: a non-conforming mortgage is one that doesn't follow GSE standards, meaning it can't be resold to Fannie Mae or Freddie Mac. These often come with higher interest rates than conforming ones. If a loan is bigger than the conforming limit, it's non-conforming and known as a jumbo mortgage. Beyond size, loans can be non-conforming due to your loan-to-value ratio, debt-to-income ratio, credit score, history, or the documentation you provide.
Understanding Non-Conforming Mortgages
Non-conforming mortgages aren't inherently bad or too risky; banks just don't like them because they don't match GSE rules, making them tougher to sell. That's why you'll usually see higher interest rates on these loans.
Most mortgages start with private banks, but many end up with Fannie Mae or Freddie Mac. These GSEs buy loans, bundle them into mortgage-backed securities, and sell them on the secondary market. While private companies do this too, Fannie and Freddie are the big players.
Banks sell these loans to free up money for new ones at current rates. But Fannie and Freddie only buy loans that are low-risk by federal standards—these are conforming mortgages, which banks prefer because they're easy to sell.
On the other hand, loans that GSEs won't touch are riskier for banks to hold onto or sell to specialists in non-conforming markets.
Types of Non-Conforming Mortgages
There are several reasons a loan might be non-conforming based on your situation or the loan type. The most common is the jumbo mortgage, which is for amounts over the Fannie Mae and Freddie Mac limits. For 2025, that's $806,500 in most U.S. counties, but up to $1,209,750 in high-cost areas like New York City or San Francisco.
Loans don't need to be jumbo to be non-conforming; a small down payment can push it there too. The cutoff varies, but it might be 10% for conventional loans or 3% for FHA ones.
Keep in mind that upfront fees for Fannie Mae and Freddie Mac loans changed in May 2023. They went up for buyers with high credit scores like 740 or above, and down for those below 640. Your down payment affects the fee too—the bigger it is, the lower the fee, but credit score still plays a role. You can check Fannie Mae's Loan-Level Price Adjustments on their site.
Your debt-to-income ratio is another factor; it usually can't go over 43% for conforming status. You also typically need a credit score of 660 or higher.
Property type matters as well. For instance, condo buyers might find their loan non-conforming if the complex is non-warrantable, like if one entity owns more than 10% of units, most aren't owner-occupied, over 25% is commercial space, or the HOA is in a lawsuit.
Who Might Non-Conforming Loans Be Best For?
If you're a homebuyer who doesn't qualify for conforming loans—maybe due to poor or no credit, not enough down payment, or needing a bigger loan—non-conforming options could work for you.
What Are the Disadvantages of a Non-Conforming Loan?
You might struggle to find lenders for these loans. When you do, expect interest rates much higher than conforming ones, plus possible extra fees at closing.
Can You Refinance a Non-Conforming Loan?
Yes, you can refinance into another non-conforming loan if rates fall or your credit gets better and you qualify for improved terms.
The Bottom Line
Finding lenders for non-conforming mortgages can be challenging, but if you don't fit conforming criteria, they're worth considering. They provide more flexibility and larger amounts, but you'll pay for it with higher rates and fees.
Other articles for you
An unrecorded deed is a property title not registered with public records, causing problems for buyers and sellers.
A histogram is a graphical tool that represents the frequency distribution of numerical data in specified intervals, similar to a bar chart but focused on continuous data ranges.
Inferior goods are products whose demand decreases as consumer incomes rise, leading people to opt for more expensive alternatives.
Branch banking involves operating multiple storefront locations to provide convenient financial services, evolving significantly since the 1980s due to deregulation and digital innovations.
A Bill of Materials (BOM) is a comprehensive list detailing the components, materials, and instructions needed to build, manufacture, or repair a product.
Receipts serve as essential proof of financial transactions for businesses, taxes, and accounting purposes.
An underlying asset is the financial asset that determines the value of a derivative like options or futures.
A grace period is a buffer time after a payment due date where borrowers can pay without penalties in various financial contracts.
A revocable beneficiary allows the policy owner to change or remove them without consent, unlike an irrevocable one.
Standard of living measures the material well-being of individuals or populations based on access to necessities like income, housing, and food.