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Founded in 1976, Bankrate has a long track record of helping people make smart financial choices. We’ve maintained this reputation for over four decades by demystifying the financial decision-making process and giving people confidence in which actions to take next. Bankrate follows a strict , so you can trust that we’re putting your interests first. All of our content is authored by and edited by , who ensure everything we publish is objective, accurate and trustworthy. Our mortgage reporters and editors focus on the points consumers care about most — the latest rates, the best lenders, navigating the homebuying process, refinancing your mortgage and more — so you can feel confident when you make decisions as a homebuyer and a homeowner. Bankrate logo Editorial integrity
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You have money questions. Bankrate has answers. Our experts have been helping you master your money for over four decades. We continually strive to provide consumers with the expert advice and tools needed to succeed throughout life’s financial journey. Bankrate follows a strict , so you can trust that our content is honest and accurate. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions. The content created by our editorial staff is objective, factual, and not influenced by our advertisers. We’re transparent about how we are able to bring quality content, competitive rates, and useful tools to you by explaining how we make money. Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products and, services, or by you clicking on certain links posted on our site. Therefore, this compensation may impact how, where and in what order products appear within listing categories. Other factors, such as our own proprietary website rules and whether a product is offered in your area or at your self-selected credit score range can also impact how and where products appear on this site. While we strive to provide a wide range offers, Bankrate does not include information about every financial or credit product or service. A non-conforming mortgage is one of several types of home loans. It’s called “non-conforming” because the borrower qualifying standards or structure fall outside .Here’s what that means. What is a non-conforming mortgage
A non-conforming mortgage is a type of home loan that doesn’t meet some or all of the guidelines making it eligible for purchase by Fannie Mae and Freddie Mac, the two government-sponsored enterprises (GSEs) that support much of the mortgage market in the U.S. This could be for any number of reasons, such as that the amount of the loan exceeds ($647,200 in most parts of the U.S. in 2022), the borrower’s credit score and debt-to-income (DTI) ratio aren’t within conforming qualifying standards or the loan has a non-traditional structure, such as an or a term other than 15 years or 30 years. How does a non-conforming loan work
Many mortgage lenders offer non-conforming loans, and some even specialize in them. They work in much the in that they allow you to borrow money to buy a home. The difference: They’re not able to be purchased by Fannie Mae and Freddie Mac, which buy mortgages from lenders and package them for investors. The capital derived from these sales helps lenders continue to offer more mortgages. For this reason, lenders tend toward conforming versus non-conforming loans, because conforming loans can be pooled easily into investment bundles and sold on this 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. 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. Types of non-conforming loans
Government-insured loans
A government-insured mortgage is one backed 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 to be bought by Fannie Mae or Freddie Mac, but they are backed by their respective agencies, so you can rest assured they’re safe products. Here’s an overview: : FHA loans allow you to borrow money for a home purchase with a credit score as low as 580 (or 500 if you have a bigger down payment) and a down payment of just 3.5 percent. Unlike some other non-conforming loans, however, you’ll need to pay with your FHA loan. : VA loans are mortgages for service members, veterans and surviving spouses. If you’re eligible, you can buy a home with a VA loan for no money down and no requirement to pay mortgage insurance. (Instead, you’ll pay a one-time .) : USDA loans are for those buying a home in certain rural areas designated by the government. Like VA loans, you can get a USDA loan with no money down, but you’ll be required to pay some fees. Jumbo loans
A 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 2022, that means a mortgage for more than $647,200 ($970,800 in higher-priced markets). In many places where home prices have risen substantially, a jumbo loan might be the only option for some borrowers. Lightbulb Bankrate insight While jumbo loans (those exceeding conforming loan limits) tended to have higher interest rates than conforming loans, jumbo rates have been . 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 assets in the bank. Hard money loan
A is a non-conforming loan providing a borrower with short-term funding. They’re often sought by real estate investors who need money to flip a property but might not have the credit or financials on paper to qualify for a more traditional home renovation mortgage. Hard money loans have higher interest rates and shorter terms, so they’re more expensive and carry more risk. Interest-only loan
Interest-only loans are non-conforming because they aren’t structured like conforming loans, which require you to repay both principal and interest as the loan amortizes over time. Rather, with an interest-only loan, you’ll pay just interest initially for a time, such as 10 years, after which you’ll repay both interest and principal, sometimes in one lump sum known as a . This payment might be unmanageable for some borrowers. Who is a non-conforming loan best for
A non-conforming mortgage is best for those who need a larger loan or otherwise don’t qualify for a conforming loan or . 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 . It might also be the only option for borrowers who need a bigger loan due to high home prices in their market. SHARE: This article was generated using automation technology and thoroughly edited and fact-checked by an editor on our editorial staff. Suzanne De Vita is the mortgage editor for Bankrate, focusing on mortgage and real estate topics for homebuyers, homeowners, investors and renters. Jeffrey L. Beal, president of Real Estate Solutions, has 40 years' experience in multiple phases of the real estate industry. Related Articles