What Is a Non-Conforming Mortgage?

A non-conforming mortgage is a mortgage that does not meet the guidelines of 澳洲幸运5官方开奖结果体彩网:government-sponsored enterprises (GSE) such as Fannie Mae and Freddie Mac and, t𓆉herefore, cannot be sold to them. GSE guidelines include a maximum loan amount, suitable properties, down payment r🦂equirements, and credit requirements, among other factors.

A non-conforming mortgage may be contrasted with a 澳洲幸运5官方开奖结果体彩网:conforming mortgage.

Understanding Non-Conforming Mortgages

Non-conforming mortgages are not bad loans because they are risky or overly complex. 澳洲幸运5官方开奖结果体彩网:Financial institutions dislike them because they do not conform to GSE guidelines and, as a result, are harder to sell. For this reason, banks will usually command a higher 澳洲幸运5官方开奖结果体彩网:interest rate on a non-conforming loan. 

Although private banks initially write most mortgages, they often end up in Fannie Mae's and Freddie Mac's portfolios. These two GSEs buy loans from banks and package them into 澳洲幸运5官方开奖结果体彩网:mortgage-backed securities (MBS), which sell on the 澳洲幸运5官方开奖结果体彩网:secondary market. An MBS is an asset-backed security (ABS) secured by a collection of ൩mortgages originating from a regulated and authorized financial institution. While there are private financial companies that buy, package, and 𒊎resell MBSs, Fannie and Freddie are the two largest purchasers.

Banks use the money from the sales of mortgages to invest in offering new loans at the current interest rate. However, 澳洲幸运5官方开奖结果体彩网:Fannie Mae and Freddie Mac can't buy just any mortgage product. The two GSEs have federal rules that limit the purchase of loans deemed relatively risk-free. These loans are conforming mortgages, and banks like them precisely because they will🔯 readily sell.

By contrast, mortgages Fannie Mae and Freddie Mac cannot buy are inherently riskier for banks to write. These difficult-to-sell loans must either stay in the bank's portfolio or be sold to entities specializing in the secondary market for non-conforming loans.

Types of Non-Conforming Mortgages

There are various borrower situations and typꦆes of loans that Fannie and Freddie deem as non-conforming. 

The most common non-conforming mortgage is often called a 澳洲幸运5官方开奖结果体彩网:jumbo mortgage—loans written for an amount more substantial than the Fannie Mae and Freddie Mac limits. In 2025, that limit in most U.S. counties is $806,500, but in some high-cost areas, such as New York City or San Francisco, it can be as high as $1,209,750.

Mortgages don’t have to be jumbo to be non-conforming. A low down payment can trigger non-conforming status, too. The threshold varies but could be 10% on a conventional mortgage or as little as 3% on a 澳洲幸运5官方开奖结果体彩网:Fe🐭deral Housing Administration (FHA) loan.

Also, a factor is the buyer’s debt-to-income ratio (DTI), which typically must not exceed 43% to qualify as a conforming loan. A 澳洲幸运5官方开奖结果体彩网:credit score of or𒈔 above 6🔯60 is usually required as well.

The type of property can also determine if a mortgage is non-conforming. For example, buyers of condos often get tripped up when they learn their dream vacation unit is non-conforming because the complex is considered non-warrantable. That includes condo associations where a single entity, such as the developer, owns more than 10% of the units. Other pitfalls include if a majority of the units are not owner-occupied, if more than 25% of the square footage is commercial, or if the 澳洲幸运5官方开奖结果体彩网:homeowners association (HOA) is in litigation.

The Bottom Line

Although it can be trickier to find lenders willing to offer a non-conforming mortgage, homebuyers who might not qualify for conforming mortgages may want to search them out. Non-conforming loans෴ offer mo𒁃re flexibility and higher loan amounts with the tradeoff of higher interest rates and fees.