What is a non-conforming loan?

A non-conforming loan is defined as a loan that does not meet the specific requirements set forth by Fannie Mae and Freddie Mac, which are government-sponsored enterprises that provide liquidity and stability to the mortgage market by purchasing conforming loans. These requirements include limits on loan amounts, borrower credit scores, and debt-to-income ratios, among other factors.

Since non-conforming loans do not adhere to these criteria, they often include unique characteristics that make them suitable for borrowers who may not fit into the standard mortgage mold. This includes loans for higher amounts than typical conforming limits, loans with less rigorous credit score requirements, or loans made for properties that do not meet Fannie Mae or Freddie Mac guidelines. Non-conforming loans can also include credit-challenged or self-employed borrowers who may present a higher risk to lenders.

The understanding of what a non-conforming loan is crucial for borrowers considering various financing options, particularly for those who are seeking to finance properties or situations that fall outside conventional lending practices.