A non-conforming loan is any mortgage that falls outside the guidelines Fannie Mae and Freddie Mac use to buy loans. That can be because of the loan amount, the way income is documented, the property, or the borrower's credit history.
The main types
- Jumbo loans, which exceed the conforming loan limit. See jumbo loans.
- Non-QM loans, which use alternative income documentation such as bank statements, 1099s or a profit and loss statement. See self-employed programs.
- Credit-event loans for borrowers with a recent bankruptcy, foreclosure or short sale that conforming guidelines would not yet allow.
- Unusual properties, such as mixed-use buildings or homes on large acreage.
What to expect
- Pricing is higher than a conforming loan because the lender keeps more of the risk.
- Down payment and reserve requirements vary widely by program; some start at 10% down, others require 20% or more.
- Income is still verified. "No-documentation" loans no longer exist under federal rules; the difference is which documents are used.
- Some programs carry a prepayment penalty. It will be disclosed on your Loan Estimate.
A non-conforming loan is often a bridge: once your credit or income history qualifies for a conforming loan, refinancing into one can lower your cost.