Non-Conforming Loan
A non-conforming loan is a mortgage that doesn't meet the purchase guidelines set by Fannie Mae or Freddie Mac, typically because the loan amount exceeds the conforming limit or because the borrower's profile doesn't fit standard requirements. Jumbo loans and Non-QM loans are the two main types of non-conforming loans.
Conforming loans can be sold to Fannie Mae or Freddie Mac, which standardizes underwriting nationwide and keeps rates relatively low. Non-conforming loans must be held by the originating lender or sold in the private market, which generally means higher rates and stricter requirements.
Jumbo loans exceed the conforming loan limit, which in 2024 is $766,550 for most of the U.S. (up to $1,149,825 in high-cost areas like San Francisco and New York City). On a $1.2 million home purchase, a buyer putting 20% down would borrow $960,000—well above the conforming limit, requiring a jumbo loan. Jumbo loans typically require 20% down, 700+ credit scores, and significant reserves.
Non-QM (Non-Qualified Mortgage) loans are non-conforming because they use alternative income documentation or serve borrowers with recent credit events. A self-employed borrower with strong bank deposits but low tax returns, or a real estate investor qualifying on rental income alone, might use a Non-QM product. These programs fill a legitimate market gap but typically carry rates 1–2% above conventional loans.
Key Takeaway
A non-conforming loan is a mortgage that doesn't meet the purchase guidelines set by Fannie Mae or Freddie Mac, typically because the loan amount exceeds the conforming limit or because the borrower's profile doesn't fit standard requirements. Jumbo loans and Non-QM loans are the two main types of non-conforming loans.
Related Terms
Frequently Asked Questions
Either the loan amount exceeds Fannie Mae/Freddie Mac's limits (making it a jumbo loan), or the borrower's income, credit, or property type doesn't meet agency guidelines (making it a Non-QM loan).
Generally yes. Jumbo loan rates are typically 0.25–0.50% above conforming rates. Non-QM loans can be 1–2% higher. The trade-off is access to financing that wouldn't otherwise be available.
For most U.S. counties, the limit is $766,550 for a single-family home. In designated high-cost areas, the limit goes up to $1,149,825. Loans above these limits are jumbo (non-conforming).
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