{"id":6058,"date":"2023-06-15T18:29:31","date_gmt":"2023-06-15T18:29:31","guid":{"rendered":"https:\/\/griffinfunding.com\/?p=6058"},"modified":"2026-03-22T01:29:18","modified_gmt":"2026-03-22T01:29:18","slug":"non-conforming-loan","status":"publish","type":"post","link":"https:\/\/griffinfunding.com\/blog\/mortgage\/non-conforming-loan\/","title":{"rendered":"Non-Conforming Loans: What They Are and How They Work"},"content":{"rendered":"<p>When you\u2019re ready to\u00a0<a href=\"https:\/\/griffinfunding.com\/blog\/mortgage\/why-should-i-buy-a-house\/\">buy a house<\/a>\u00a0and learn about the mortgage process, you\u2019ll come across\u00a0<a href=\"https:\/\/griffinfunding.com\/blog\/mortgage\/mortgage-terms-glossary\/\">mortgage terms<\/a>\u00a0that seem intimidating and confusing. Terms like \u201cconforming\u201d and \u201cnon-conforming loans\u201d can make applying for a home loan even more confusing and daunting. However, knowing the difference between these types of loans can ensure you make the right decision for your family and wallet.<\/p>\n<p>Loans fall under several categories, including non-conforming and conforming loans. Conforming loans are your typical conventional home loan with strict lending criteria, which make it challenging for many people to be eligible. Luckily, for individuals who don\u2019t meet conforming loan requirements, there are non-conforming loans, also referred to as non-agency loans.<\/p>\n<p>But what are non-conforming loans, and how do they differ from conforming loans? Keep reading to learn more about non-conforming mortgage loans, including what they are, how they work, and their pros and cons.<\/p>\n<div id=\"key_takeaways\"><h3>KEY TAKEAWAYS<\/h3><ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Non-conforming loans are home loans that don\u2019t adhere to Fannie Mae and Freddie Mac guidelines for resale.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">These loans are ideal for individuals with low credit scores and down payment amounts or those wanting to purchase a home in an expensive area.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">There are several types of non-conforming loans with different requirements, and understanding your options can help you find the right mortgage.<\/span><\/li>\n<\/ul>\n<\/div>\n<h2 id=\"link\">What Is a Non-Conforming Loan?<\/h2>\n<p>The non-conforming loan definition is a little complex if you don\u2019t understand how the mortgage process works behind the scenes. To understand what a non-conforming loan is, you must understand how the mortgage market works.<\/p>\n<p><a href=\"https:\/\/www.fhfa.gov\/about\/fannie-mae-freddie-mac\"><span style=\"font-weight: 400;\">Fannie Mae and Freddie Mac<\/span><\/a><span style=\"font-weight: 400;\"> are entities that have guidelines for loan limits and qualifications because they buy mortgages from lenders and sell them on the secondary mortgage market. These companies guarantee most of the mortgages in the United States but don\u2019t originate or service the loans. Instead, they purchase and guarantee loans through the secondary mortgage market.<\/span><\/p>\n<p>These companies are federally backed and provide stability to the mortgage market, making homeownership more affordable for borrowers by purchasing mortgages from lenders and reselling them to investors. Ultimately, purchasing mortgages frees up a lender\u2019s capital, allowing them to service more loans. To do this, government-sponsored enterprises (GSEs) like Fannie Mae and Freddie Mac have specific requirements for borrowers and loans set by the Federal Housing Finance Agency (FHFA), including maximum loan limits and lending criteria, such as maximum debt-to-income (DTI) ratios, minimum <a href=\"https:\/\/griffinfunding.com\/blog\/credit-score-for-first-time-home-buyers\/\">credit scores<\/a>, and down payments.<\/p>\n<p><span data-sheets-value=\"{&quot;1&quot;:2,&quot;2&quot;:&quot;&quot;}\" data-sheets-userformat=\"{&quot;2&quot;:641,&quot;3&quot;:{&quot;1&quot;:0},&quot;10&quot;:1,&quot;12&quot;:0}\"><div class=\"cta_banner\" style=\"background:url(https:\/\/griffinfunding.com\/wp-content\/uploads\/2023\/04\/Catbanner2.jpg)\"><h3>We\u2019re here to help walk you through your home-buying journey, whether you\u2019re just starting your search or looking to refinance your current property.<\/h3><a href=\"https:\/\/griffinfunding.com\/full-page-form-quick-quote\/\/\">Get Started<\/a><\/div><\/span><\/p>\n<p>Borrowers won\u2019t have any contact with these entities, but they\u2019ll know when their mortgage is sold when they get a letter in the mail.<\/p>\n<p>Non-conforming loans are any loans that don\u2019t meet \u2014 or conform to \u2014 Fannie Mae and Freddie Mac guidelines. Loans may not conform if they don\u2019t meet any one of the FHFA requirements or if the loan amount exceeds specific limits. Unfortunately, this means they\u2019re more difficult for lenders to sell, forcing them to keep them in their investment portfolios. That said, there are several non-conforming loans backed by the government instead of GSEs, making them easier to sell on the secondary mortgage market.<\/p>\n<h2 id=\"link\">How Do Non-Conforming Loans Work?<\/h2>\n<p>Non-conforming loans typically work best for individuals who want to purchase a home without putting down a hefty down payment, have lower credit scores, or want to purchase a home in a competitive market.<\/p>\n<p>How a non-conforming loan works depends on the specific type. For example,\u00a0<a href=\"https:\/\/griffinfunding.com\/traditional-mortgages\/va-loans\/\">VA loans<\/a>\u00a0don\u2019t require a down payment, while\u00a0<a href=\"https:\/\/griffinfunding.com\/traditional-mortgages\/fha-loans\/\">FHA loans<\/a>\u00a0do. Conversely, some individuals will choose a\u00a0<a href=\"https:\/\/griffinfunding.com\/traditional-mortgages\/jumbo-loans\/\">jumbo loan<\/a>\u00a0if they need to purchase a more expensive home that exceeds the Fannie Mae and Freddie Mac loan limits.<\/p>\n<p>Non-conforming loans work similarly to conforming loans. You\u2019ll still complete an application to qualify and provide proof of income and other documents for the lender to verify. Each type of non-conforming loan has different lending criteria, benefits, and use cases. Many non-conforming loans offer a greater degree of flexibility when it comes to things like:<\/p>\n<ul>\n<li><strong>Proof of income<\/strong>: Some non-conforming loans are able to accommodate borrowers who can\u2019t prove income via tax returns, and instead accept bank statements, asset statements, and other alternative income documentation.<\/li>\n<li><strong>Credit score<\/strong>: Many non-conforming loans are more lenient when it comes to minimum credit score requirements.<\/li>\n<li><strong>Down payment amount<\/strong>: While some non-conforming loans require a down payment, others do not. Additionally, the minimum down payment requirement can vary depending on the specific type of loan you\u2019re interested in.<\/li>\n<li><strong>Loan amount<\/strong>: Non-conforming loans are able to provide borrowers with larger loan amounts. With these types of loans, borrowers may also be able to secure an unconventional loan term that is longer or shorter than is typical.<\/li>\n<\/ul>\n<h2 id=\"link\">Non-Conforming Loan Qualification Requirements<\/h2>\n<p>Conforming loans become non-conforming loans when they don\u2019t meet the guidelines set forth by GSEs like Freddie Mae and Freddie Mac. Qualifying for a non-conforming loan is usually easier because of the more flexible lending criteria. Some of the key qualifications for non-confirming loans include the following:<\/p>\n<ul>\n<li><b>Credit score:<\/b> Non-conforming loans are ideal for borrowers with a credit score lower than the minimum requirement for conforming loans. Therefore, individuals with credit scores lower than 620 can still qualify for a non-conforming mortgage loan.<\/li>\n<li><b>Loan size:<\/b><span style=\"font-weight: 400;\"> Non-conforming mortgage loans can exceed the loan limits set by GSEs. The conforming loan limit is <a href=\"https:\/\/www.fhfa.gov\/news\/news-release\/fhfa-announces-conforming-loan-limit-values-for-2026\">$832,750<\/a><\/span><span style=\"font-weight: 400;\"> in 2026<\/span><span style=\"font-weight: 400;\">\u00a0for most of the country. Any loan amounts higher than that are considered non-conforming.<\/span><\/li>\n<li><b>DTI ratio: <\/b>Conforming loans typically have a maximum DTI of 43%, while non-conforming loans often allow a DTI as high as 55%.<\/li>\n<li><b>Down payment required: <\/b>Different types of loans have different down payment requirements. If you put down less than the required amount, it makes your loan non-conforming.<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter size-full wp-image-10153\" src=\"https:\/\/griffinfunding.com\/wp-content\/uploads\/2023\/06\/image1-11.png\" alt=\"\" width=\"1999\" height=\"1049\" srcset=\"https:\/\/griffinfunding.com\/wp-content\/uploads\/2023\/06\/image1-11.png 1999w, https:\/\/griffinfunding.com\/wp-content\/uploads\/2023\/06\/image1-11-300x157.png 300w, https:\/\/griffinfunding.com\/wp-content\/uploads\/2023\/06\/image1-11-1024x537.png 1024w, https:\/\/griffinfunding.com\/wp-content\/uploads\/2023\/06\/image1-11-768x403.png 768w, https:\/\/griffinfunding.com\/wp-content\/uploads\/2023\/06\/image1-11-1536x806.png 1536w\" sizes=\"auto, (max-width: 1999px) 100vw, 1999px\" \/><\/p>\n<p>It\u2019s important to note that the requirements vary for non-conforming loans. However, non-conforming loans generally are ideal for borrowers who can\u2019t meet the requirements of conforming loans.<\/p>\n<h2 id=\"link\">Conforming vs. Non-Conforming Loans<\/h2>\n<p>The main difference between conforming and non-conforming loans is that conforming loans adhere to strict standards, allowing Fannie Mae and Freddie Mac to purchase and resell them on the secondary mortgage market. On the other hand, non-conforming loans are much more difficult to sell since they can\u2019t be sold to the two largest mortgage buyers in the country. Here are a few other key differences to consider:<\/p>\n<ul>\n<li><b>Cost: <\/b>The loan amount you receive from a lender isn\u2019t your total cost of the loan. Every mortgage loan, whether conforming or non-conforming, comes with interest. Non-conforming loan rates are typically higher because they carry more risk for the lender. They\u2019re not easily sold to another company or investor, which lenders may view as a risk because it means they can\u2019t sell them to increase cash flow to service more loans.<\/li>\n<li><b>Limits:<\/b> Non-conforming loans can exceed the conforming loan limits, making them jumbo loans. If a home loan amount exceeds conforming loan limits, it can\u2019t be purchased by Freddie Mac or Fannie Mae, making it non-conforming.<\/li>\n<li><b>Lending criteria flexibility: <\/b>Conforming loans have strict guidelines for borrowers, so they can be purchased and resold on the secondary mortgage market. Any home loans given to borrowers that don\u2019t meet these requirements are considered non-conforming mortgages. For example, to qualify for a conforming loan, you must meet the specific credit score guideline of 620 or higher. Conversely, you may qualify for a non-conforming loan with a much lower score. Other flexible requirements include higher DTI ratios and lower down payment requirements.<\/li>\n<\/ul>\n<div class=\"cta_banner gold_cta\" style=\"background:url(https:\/\/griffinfunding.com\/wp-content\/uploads\/2024\/02\/gold-background-1.png)\"><h3>Download the Griffin Gold app today!<\/h3><p>Take charge of your financial wellness and achieve your homeownership goals <br><br>\r\nUse invitation code: <b>GRIFGOLD<\/b> to register.<\/p><div class=\"stores\"><a href=\"https:\/\/apps.apple.com\/us\/app\/griffin-gold\/id6460034387\"><img decoding=\"async\" src=\"https:\/\/griffinfunding.com\/wp-content\/uploads\/2024\/02\/apple-icon.svg\" \/><\/a><a href=\"https:\/\/play.google.com\/store\/apps\/details?id=com.griffinfunding.gold\"><img decoding=\"async\" src=\"https:\/\/griffinfunding.com\/wp-content\/uploads\/2024\/02\/google-store.svg\" \/><\/a><\/div><\/div>\n<h2 id=\"link\">The Different Types of Non-Conforming Loans<\/h2>\n<p>There are several types of non-conforming loans to choose from. Remember, any loan that doesn\u2019t meet the strict lending criteria of GSEs is considered a non-conforming loan. The most common types of non-conforming mortgages include the following:<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter size-full wp-image-10154\" src=\"https:\/\/griffinfunding.com\/wp-content\/uploads\/2023\/06\/image4-12.png\" alt=\"\" width=\"1999\" height=\"1343\" srcset=\"https:\/\/griffinfunding.com\/wp-content\/uploads\/2023\/06\/image4-12.png 1999w, https:\/\/griffinfunding.com\/wp-content\/uploads\/2023\/06\/image4-12-300x202.png 300w, https:\/\/griffinfunding.com\/wp-content\/uploads\/2023\/06\/image4-12-1024x688.png 1024w, https:\/\/griffinfunding.com\/wp-content\/uploads\/2023\/06\/image4-12-768x516.png 768w, https:\/\/griffinfunding.com\/wp-content\/uploads\/2023\/06\/image4-12-1536x1032.png 1536w\" sizes=\"auto, (max-width: 1999px) 100vw, 1999px\" \/><\/p>\n<p>&nbsp;<\/p>\n<h3>Government-Backed Loans<\/h3>\n<p>Government-backed loans are technically non-conforming because they don\u2019t meet Fannie Mae and Freddie Mac\u2019s lending requirements. However, they\u2019re not defined this way in the mortgage industry because they\u2019re not conventional mortgages. Conventional mortgages are those that aren\u2019t backed or guaranteed by the government. Since these loans are, they\u2019re non-conventional and non-conforming. Below are three types of non-conforming government-backed loans:<\/p>\n<h4><a href=\"https:\/\/griffinfunding.com\/traditional-mortgages\/usda-loans\/\">USDA Loans<\/a><\/h4>\n<p><span style=\"font-weight: 400;\">USDA loans<\/span><span style=\"font-weight: 400;\"> are guaranteed by the <\/span><a href=\"https:\/\/www.rd.usda.gov\/programs-services\/single-family-housing-programs\/single-family-housing-guaranteed-loan-program\"><span style=\"font-weight: 400;\">Rural Development Guaranteed Housing Loan Program<\/span><\/a><span style=\"font-weight: 400;\"> from the United States Department of Agriculture (USDA) and offer 0% down payment options, low-interest rates, and a more lenient minimum credit score requirement. The caveat is that these loans are only available for properties in eligible rural areas.<\/span><\/p>\n<p>Besides the option to put 0% down on a home, the most significant benefit of these loans is that they typically come with more competitive interest rates because the government is taking on more risk. Additionally, these loans don\u2019t require borrowers to pay traditional private mortgage insurance (PMI).<\/p>\n<p><span style=\"font-weight: 400;\">These loans can be<\/span><span style=\"font-weight: 400;\"> difficult to qualify for because a borrower\u2019s income can\u2019t exceed 115% of the median income of the area where the property is located. In addition to this rule, borrowers must have a dependable income and a credit score of at least 640.<\/span><\/p>\n<h4><a href=\"https:\/\/griffinfunding.com\/traditional-mortgages\/fha-loans\/\">FHA Loans<\/a><\/h4>\n<p>FHA loans are backed by the Federal Housing Administration (FHA) and available for anyone, including first- and second-time homebuyers. This mortgage program allows for down payments as low as 3.5% and credit scores as low as 580. However, the requirements vary. For instance, you\u2019ll need a down payment of at least 10% if you have a low credit score.<\/p>\n<p>While FHA loans don\u2019t require private mortgage insurance (PMI) for down payments of less than 20%, you will be required to pay an upfront mortgage insurance premium (MIP), which can increase the total cost of the loan. This premium is paid at closing and can be financed into the loan. You\u2019ll have to pay it all at once and upfront as an on-time additional charge.<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter size-full wp-image-6054\" src=\"https:\/\/griffinfunding.com\/wp-content\/uploads\/2023\/06\/image3-4.jpg\" alt=\"\" width=\"1000\" height=\"667\" srcset=\"https:\/\/griffinfunding.com\/wp-content\/uploads\/2023\/06\/image3-4.jpg 1000w, https:\/\/griffinfunding.com\/wp-content\/uploads\/2023\/06\/image3-4-300x200.jpg 300w, https:\/\/griffinfunding.com\/wp-content\/uploads\/2023\/06\/image3-4-768x512.jpg 768w\" sizes=\"auto, (max-width: 1000px) 100vw, 1000px\" \/><\/p>\n<p>So what makes an FHA loan non-conforming? Ultimately, an FHA loan is non-conforming when it exceeds loan limits. However, their lending criteria differ from <a href=\"https:\/\/griffinfunding.com\/traditional-mortgages\/conventional-loans\/\">conventional loans<\/a>, which typically require higher down payments and credit scores.<\/p>\n<h4><a href=\"https:\/\/griffinfunding.com\/traditional-mortgages\/va-loans\/\">VA Loans<\/a><\/h4>\n<p><span style=\"font-weight: 400;\">VA loans<\/span><span style=\"font-weight: 400;\"> are backed by the Department of Veterans Affairs and are only available for eligible active duty service members, veterans, and surviving spouses. However, if you qualify for a VA loan, there\u2019s no reason not to take advantage of it because it doesn\u2019t require a down payment. However, putting down more than 0% can help you get better terms and lower non-conforming rates. VA loans also have more lenient credit score requirements and no loan limits.<\/span><\/p>\n<p>In addition, if you choose to put down 0%, you won\u2019t have to worry about mortgage insurance. VA loans are sold to Ginnie Mae. Ginnie Mae is not a GSE but rather a wholly-owned government corporation under the HUD umbrella.<\/p>\n<h3>Jumbo Loans<\/h3>\n<p><a href=\"https:\/\/griffinfunding.com\/traditional-mortgages\/jumbo-loans\/\">Jumbo loans<\/a> are a type of non-conforming conventional loan. A conventional loan is one that the government does not back. Since jumbo loans aren\u2019t backed by the government and exceed the conforming loan limits, they\u2019re conventional, non-conforming loans. These loans are ideal for individuals who want to purchase a home in a high-cost area. However, lenders consider jumbo loans riskier because they\u2019re available in higher amounts. Typically, borrowers need lower DTI ratios and higher credit scores to qualify. Additionally, they\u2019ll need income that proves their ability to repay the loan.<\/p>\n<h3>Other Types of Non-Conforming Loans<\/h3>\n<p>Apart from government-backed non-conforming loans and jumbo loans, there are several other <a href=\"https:\/\/griffinfunding.com\/blog\/home-buying-tips\/types-of-home-loans\/\">types of home loans<\/a> that qualify as non-conforming, such as:<\/p>\n<ul>\n<li><a href=\"https:\/\/griffinfunding.com\/non-qm-mortgages\/private-money-loans\/\"><strong>Hard money loans<\/strong><\/a><strong>:<\/strong>\u00a0Hard money loans are a type of\u00a0<a href=\"https:\/\/griffinfunding.com\/non-qm-mortgages\/asset-based-loans\/\">asset-based loan<\/a>. However, instead of converting your assets into income to qualify, they\u2019re short-term loans that use assets or property as collateral for the loan. They\u2019re most commonly used by real estate investors or house flippers who may not qualify for other types of investment property loans. These\u00a0<a href=\"https:\/\/griffinfunding.com\/blog\/mortgage\/what-is-a-hard-money-loan\/\">private money loans<\/a>\u00a0have higher interest rates and carry more risk for the lender and the borrower.<\/li>\n<li><a href=\"https:\/\/griffinfunding.com\/non-qm-mortgages\/dscr-loans\/\"><strong>DSCR loans<\/strong><\/a>: Debt service coverage ratio (DSCR) loans help real estate investors qualify for mortgages based on their property\u2019s income rather than personal earnings. Lenders calculate DSCR by dividing a property\u2019s net operating income by its mortgage payment, ensuring rental income covers the loan. These loans are ideal for investors in rental properties,\u00a0<a href=\"https:\/\/griffinfunding.com\/blog\/dscr-loans\/dscr-loan-for-airbnb\/\">short-term rentals<\/a>, or fix-and-flip projects who may not have traditional income documentation. While DSCR loans offer flexibility, they often come with higher interest rates and down payment requirements.<\/li>\n<li><a href=\"https:\/\/griffinfunding.com\/non-qm-mortgages\/bank-statement-loans\/\"><strong>Bank statement loans<\/strong><\/a>: Bank statement loans cater to self-employed individuals, freelancers, and small business owners who lack W-2 income but have strong cash flow. Instead of tax returns, lenders use\u00a0<a href=\"https:\/\/griffinfunding.com\/blog\/bank-statement-loans\/how-many-months-of-bank-statements\/\">12 to 24 months of bank statements<\/a>\u00a0to verify income. These loans work well for those with fluctuating earnings but steady deposits. While they provide flexibility, they often require higher credit scores, larger down payments, and slightly higher interest rates. Borrowers can use them for primary homes, second homes, or investment properties.<\/li>\n<li><a href=\"https:\/\/griffinfunding.com\/non-qm-mortgages\/interest-only-home-loans\/\"><strong>Interest-only mortgages<\/strong><\/a>: Interest-only mortgages allow borrowers to save money on the first portion of their loan by paying towards the interest instead of the principal balance. There are two types of interest-only mortgages: adjustable-rate and fixed-rate, and whichever one you choose can impact your total loan amount. Interest-only mortgages are ideal if you want to keep your monthly payments low for the first portion of the loan, allowing you to save money to pay higher amounts later.<\/li>\n<li><strong>Purchase money mortgages:\u00a0<\/strong>A purchase money mortgage, also known as seller financing, is a type of mortgage that the seller gives directly to the buyer. This can happen if a buyer doesn\u2019t qualify for traditional banking, allowing the seller to set the down payment, interest rate, and closing fee requirements. These non-conforming loans typically only occur when the buyer has a\u00a0<a href=\"https:\/\/griffinfunding.com\/non-qm-mortgages\/recent-credit-event-loans\/\">poor credit score<\/a>\u00a0or high DTI and doesn\u2019t qualify for another type of loan. However, they\u2019re difficult to come by because it means the seller has to put in extra work to ensure that the buyer can afford the home and pay for it.<\/li>\n<li><strong>Holding mortgages:\u00a0<\/strong>A holding mortgage is another type of non-conforming loan where the seller acts as the lender or bank. Under this type of mortgage, the homeowner is the lender and gives the buyer a loan to finance the home. With a holding mortgage, the seller retains the property title until the loan is fully paid off in monthly installments.<\/li>\n<\/ul>\n<h2><strong>Pros and Cons of Non-Conforming Loans\u00a0<\/strong><\/h2>\n<p>Compare the pros and cons of non-conforming mortgage loans to see if this financing option aligns with your needs and goals.<\/p>\n<h3>Advantages Of Non-Conforming Mortgages<\/h3>\n<p>Non-confirming mortgages allow more borrowers to qualify for a home loan because they have more flexible lending requirements. A few advantages of non-conforming mortgages include the following;<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter size-full wp-image-6052\" src=\"https:\/\/griffinfunding.com\/wp-content\/uploads\/2023\/06\/image1-2.png\" alt=\"\" width=\"1999\" height=\"769\" srcset=\"https:\/\/griffinfunding.com\/wp-content\/uploads\/2023\/06\/image1-2.png 1999w, https:\/\/griffinfunding.com\/wp-content\/uploads\/2023\/06\/image1-2-300x115.png 300w, https:\/\/griffinfunding.com\/wp-content\/uploads\/2023\/06\/image1-2-1024x394.png 1024w, https:\/\/griffinfunding.com\/wp-content\/uploads\/2023\/06\/image1-2-768x295.png 768w, https:\/\/griffinfunding.com\/wp-content\/uploads\/2023\/06\/image1-2-1536x591.png 1536w\" sizes=\"auto, (max-width: 1999px) 100vw, 1999px\" \/><\/p>\n<h3>Lower down payment requirements<\/h3>\n<p>Non-conforming loans typically have lower down payment requirements, with some allowing you to purchase a home with a 0% down payment. For example, USDA and VA loans allow borrowers to put down as little as they want on a home. However, both loan programs have strict requirements for borrowers to be eligible for these benefits. In addition, a higher down payment can help you get lower non-conforming rates to reduce the total cost of the loan.<\/p>\n<h3>Larger loan limits<\/h3>\n<p>Some non-conforming mortgages have larger loan limits. For example, jumbo loans allow borrowers to purchase properties with loans that exceed the Fannie Mae and Freddie Mac conforming loan limits, allowing them to become homeowners in high-cost cities or competitive markets.<\/p>\n<h3>Lower credit score requirements<\/h3>\n<p>Non-conforming loans allow individuals with credit scores lower than 620 to qualify for a loan. However, the credit score requirements vary by loan program and lender, so you should do your research and know your credit score before applying.<\/p>\n<h3>Disadvantages of Non-Conforming Mortgages<\/h3>\n<p>No mortgage is perfect. Some loans are better suited for particular borrowers than others. There are a few drawbacks to non-conforming mortgages, such as:<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter size-full wp-image-6055\" src=\"https:\/\/griffinfunding.com\/wp-content\/uploads\/2023\/06\/image4-5.png\" alt=\"\" width=\"1999\" height=\"769\" srcset=\"https:\/\/griffinfunding.com\/wp-content\/uploads\/2023\/06\/image4-5.png 1999w, https:\/\/griffinfunding.com\/wp-content\/uploads\/2023\/06\/image4-5-300x115.png 300w, https:\/\/griffinfunding.com\/wp-content\/uploads\/2023\/06\/image4-5-1024x394.png 1024w, https:\/\/griffinfunding.com\/wp-content\/uploads\/2023\/06\/image4-5-768x295.png 768w, https:\/\/griffinfunding.com\/wp-content\/uploads\/2023\/06\/image4-5-1536x591.png 1536w\" sizes=\"auto, (max-width: 1999px) 100vw, 1999px\" \/><\/p>\n<h3>Higher interest rates<\/h3>\n<p>Non-conforming loan rates are usually higher than conforming ones because they carry more risk to the lender. Since the lender can\u2019t sell them to Fannie Mae or Freddie Mac, they\u2019re harder to sell and can stay in a lender\u2019s portfolio for many years, making it more challenging for them to free up the cash flow to service other loans. This risk for the lender typically translates to higher interest rates for the borrower. A higher interest rate means paying more over the life of the loan, so it\u2019s crucial to determine whether this type of loan is worth it. In addition, since it increases your monthly mortgage payments, some borrowers may not be able to afford it.<\/p>\n<p>That said, some non-conforming loans are backed by the federal government, making them less risky for the lender. For example, VA loans are sold to Ginnie Mae and typically come with competitive or lower interest rates than traditional conforming loans.<\/p>\n<h3>Accessibility<\/h3>\n<p>Not all lenders offer non-conforming loans, so you may have to do your research to find one in your area. Since these loans are more challenging to sell on the secondary mortgage market, your local bank may not offer them.<\/p>\n<h3>May be harder to qualify for<\/h3>\n<p>In most cases, non-conforming loans are easier to qualify for because they have more flexible lending requirements, such as lower down payments and credit scores accepted. However, some non-conforming loans can be harder to qualify for. For example, jumbo loans typically require a lower DTI, higher credit score, and hefty down payment because they offer large loan limits that exceed those of conforming loans.<\/p>\n<h2><b>Non-Conforming Mortgage Rates<\/b><\/h2>\n<p><span style=\"font-weight: 400;\">Non-conforming mortgage rates can vary depending on the type of loan and borrower qualifications. In many cases, non-conforming loans tend to have higher interest rates than conforming loans because they carry more risk for lenders. This is especially true for jumbo loans, hard money loans, and certain alternative mortgage products, which lack the backing of government agencies and involve larger loan amounts or unconventional borrower profiles.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">However, government-backed non-conforming loans \u2014 such as VA loans, USDA loans, and FHA loans \u2014 actually offer highly competitive rates. Because these loans are insured by the government, lenders face less risk, allowing them to offer lower interest rates to eligible borrowers.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Interest rates are partially influenced by the type of loan you choose, but other factors play a role as well:\u00a0\u00a0<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Income level:<\/b><span style=\"font-weight: 400;\"> Lenders look at your income stability, consistency, and debt-to-income (DTI) ratio to determine your ability to repay the loan. A lower DTI ratio (below 43%) is preferred, as it indicates that your monthly debt obligations are manageable compared to your income.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Credit score: <\/b><span style=\"font-weight: 400;\">Your credit score is one of the most significant factors in determining your mortgage rate. Higher scores (typically 700 or above) qualify for better rates, while lower scores may result in higher interest rates due to increased lender risk.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Loan type: <\/b><span style=\"font-weight: 400;\">The type of non-conforming loan you choose impacts your interest rate. Government-backed loans (VA, FHA, USDA) generally offer lower rates because they are insured by the government.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Loan amount: <\/b><span style=\"font-weight: 400;\">Larger loan amounts, such as jumbo loans, often come with higher interest rates because they exceed conforming loan limits and cannot be sold to Fannie Mae or Freddie Mac.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Down payment amount: <\/b><span style=\"font-weight: 400;\">A larger <\/span><a href=\"https:\/\/griffinfunding.com\/blog\/mortgage\/average-down-payment-on-a-house\/\"><span style=\"font-weight: 400;\">down payment<\/span><\/a><span style=\"font-weight: 400;\"> reduces the lender\u2019s risk, which can lead to a lower interest rate. Borrowers who put down 20% or more typically receive better rates.<\/span><\/li>\n<li><strong>Market conditions:<\/strong>\u00a0Interest rates fluctuate based on economic factors like inflation, Federal Reserve policies, and\u00a0<a href=\"https:\/\/griffinfunding.com\/blog\/mortgage\/housing-market-under-trump\/\">housing market trends<\/a>.<\/li>\n<\/ul>\n<p><span data-sheets-value=\"{&quot;1&quot;:2,&quot;2&quot;:&quot;&quot;}\" data-sheets-userformat=\"{&quot;2&quot;:641,&quot;3&quot;:{&quot;1&quot;:0},&quot;10&quot;:1,&quot;12&quot;:0}\"><div class=\"cta_banner\" style=\"background:url(https:\/\/griffinfunding.com\/wp-content\/uploads\/2023\/04\/Catbanner2.jpg)\"><h3>We accept lower credit scores.<\/h3><a href=\"https:\/\/griffinfunding.com\/full-page-form-quick-quote\/\/\">Get a Quote Today<\/a><\/div><\/span><\/p>\n<h2 id=\"link\">See If a Non-Conforming Loan Is Right For You<\/h2>\n<p>A non-conforming mortgage might be right if you want a lower down payment, have a low credit score, or need a loan that exceeds conforming loan limits. However, these loans typically come with higher interest rates that can hurt your eligibility or make your loan more expensive if you choose to move forward.<\/p>\n<p><span style=\"font-weight: 400;\">Talk to a Griffin Funding mortgage specialist today to learn more about non-conforming loans and see if you qualify. If you don\u2019t qualify, don\u2019t worry. We have many loan programs designed with different types of borrowers in mind, including conventional, FHA, and <\/span><a href=\"https:\/\/griffinfunding.com\/non-qm-mortgages\/\"><span style=\"font-weight: 400;\">non-QM loans<\/span><\/a><span style=\"font-weight: 400;\">, to help you secure a loan to purchase your dream home. <\/span><span style=\"font-weight: 400;\">In fact, you can use our free <\/span><a href=\"https:\/\/gold.griffinfunding.com\/pfm\/registration\/invite?key=1c204fd9-839b-4775-aed1-9844766b60a6\"><span style=\"font-weight: 400;\">Griffin Gold<\/span><\/a><span style=\"font-weight: 400;\"> app to explore and compare mortgage options while also leveraging smart financial management tools.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Reach out to Griffin Funding today to learn more about non-conforming mortgages and see what non-conforming mortgage rate you qualify for.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>When you\u2019re ready to\u00a0buy a house\u00a0and learn about the mortgage process, you\u2019ll come across\u00a0mortgage terms\u00a0that seem intimidating and confusing. Terms like \u201cconforming\u201d and \u201cnon-conforming loans\u201d can make applying for a home loan even more confusing and daunting. However, knowing the difference between these types of loans can ensure you make the right decision for your<a class=\"moretag\" href=\"https:\/\/griffinfunding.com\/blog\/mortgage\/non-conforming-loan\/\">&#8230;<\/a><\/p>\n","protected":false},"author":2,"featured_media":6053,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"content-type":"","inline_featured_image":false,"footnotes":""},"categories":[100],"tags":[],"class_list":["post-6058","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-mortgage"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v28.0 (Yoast SEO v28.0) - https:\/\/yoast.com\/product\/yoast-seo-premium-wordpress\/ -->\n<title>Non-Conforming Loans: What They Are &amp; How They Work | Griffin Funding<\/title>\n<meta name=\"description\" content=\"Discover what non-conforming loans are, how they differ from 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