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Suzanne De Vita
Suzanne De Vita is a senior editor on Bankrate’s Home Lending team, focusing on mortgage and real estate topics for homebuyers, homeowners, investors and renters.
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Jeffrey Beal
Jeffrey L. Beal, president of Real Estate Solutions, has 40 years' experience in multiple phases of the real estate industry.
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A non-conforming mortgage is one of several types of home loans. It’s called “non-conforming” because the borrower qualifying standards fall outside conforming criteria that allows the two major government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac, to buy the loan.
Let’s look more closely at what that means for you, the borrower — and when you might want to explore a non-conforming mortgage for yourself.
Non-conforming mortgages are a type of home loan that don’t meet some or all of the guidelines that make them eligible for purchase by Fannie Mae and Freddie Mac. These GSEs, overseen by the Federal Housing Finance Agency (FHFA), support much of the secondary mortgage market in the U.S.
A loan could be labeled non-conforming for a number of reasons, such as:
Many mortgage lenders offer non-conforming loans, and some even specialize in them. When you borrow from these non-conforming mortgage lenders, the loans work in much the same way as a conforming loan in that they allow you to borrow money to buy a home.
The difference: Fannie Mae and Freddie Mac cannot purchase non-conforming mortgages from lenders and package them for investors. Typically, the capital derived from these sales helps lenders continue to offer more mortgages.
For this reason, lenders tend toward conforming versus non-conforming loans. They prefer conforming loans because they can be easily pooled into investment bundles and sold on the secondary mortgage market. Because they can’t sell non-conforming loans to the GSEs, lenders often keep these on their books, which requires more work to underwrite and service.
For you as the borrower, the lack of GSE backing isn’t necessarily cause for concern; there are some non-conforming loans that are backed by other government agencies instead of the GSEs. The non-conforming loans without backing, however, might present risks.
A government-backed mortgage is one insured or guaranteed by either the Federal Housing Administration (FHA loans), the U.S. Department of Veterans Affairs (VA loans) or U.S. Department of Agriculture (USDA loans). These aren’t eligible for Fannie Mae or Freddie Mac to buy, but they are backed by their respective agencies, so you can rest assured they’re safe products. Here’s an overview:
A jumbo loan is one of the most common types of non-conforming loans, though not every lender offers them. These loans are for borrowers in need of a bigger mortgage than what’s allowed with a conforming loan. In most areas in 2024, that means a mortgage for more than $766,550 (or up to $1,149,825 in higher-priced markets). In many places where home prices have risen substantially, a jumbo loan might be the only option for some borrowers.
While they’ve historically been higher than conforming loans, jumbo loan rates have trended lower in recent years. They can be more difficult to qualify for, however. You might need to put more money down upfront, for example, have a better credit score (typically 700 or higher) and additional cash reserves or financial assets at your disposal.
Non-conforming mortgages are best for those who need a larger loan or otherwise don’t qualify for a conforming loan. This might include borrowers who have a lower credit score or limited or no down payment savings, or those who are real estate investors or self-employed. Non-conforming loans may also be the only option for borrowers who need a bigger loan due to high home prices.
Arrow Right Senior editor, Home Lending
Suzanne De Vita is a senior editor on Bankrate’s Home Lending team, focusing on mortgage and real estate topics for homebuyers, homeowners, investors and renters.
