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There’s a lot of vocabulary in the mortgage process, and it’s important to know your terminology. For example, construction of the Batcave was probably too expensive for Bruce Wayne to get a conforming loan – not that the multi-billionaire founder of Wayne Enterprises needs one, but we digress.

If you’re looking to buy or refinance a home, it’s important to understand some of this mortgage lingo. What is a non-conforming loan, and how does it differ from a conforming mortgage? Would it really be the best choice for Batman?

Let’s dive in and find out.

What Is A Non-Conforming Loan?

Non-conforming loans are loans that aren’t bought by Fannie Mae or Freddie Mac. The most common types are government-backed mortgages – like FHA, USDA and VA loans – and jumbo loans.

What makes a loan non-conforming? Reasons can vary, but might include:

  • Lower minimum credit requirements
  • Lower minimum down payment requirements
  • Higher debt-to-income ratio (DTI) allowances
  • High loan limits (for jumbo loans)

Government loans can be a good choice if you don’t qualify for a conforming loan, while jumbo loans can help you get a mortgage higher than the conforming limit.

Conforming Vs. Non-Conforming Loans

The best way to understand what a non-conforming loan is might be to talk about what it isn’t: namely, a conforming loan.

A conforming loan is one that meets the requirements to be sold to Fannie Mae or Freddie Mac. To be sold to one of these investors, the loan must meet certain rules set by the Federal Housing Finance Agency (FHFA). These rules are what differentiate conforming and non-conforming loans.

2021 Loan Limits

The first big difference between a conforming and a non-conforming loan is the loan’s limits, which vary by state and county. Below are the conforming loan limits for 2021.

  • For the lower 48 states, the maximum amount on a regular loan for a one-unit property is generally $548,250.
  • For Alaska, Hawaii and certain high-cost counties, the maximum is $822,375.
  • In no instance will the mortgage amount you can get for a one-unit property be higher than $822,375 on a conforming loan.
  • If you’re buying a multi-unit home, higher limits do apply.
  • Anything above county limits is a jumbo loan and, thus, non-conforming.

Credit Score

To get a conforming loan, you must meet the credit guidelines of the agency that’s buying the loan. For conventional loans, Fannie Mae and Freddie Mac accept a median FICO® Score of 620 or higher. A non-conforming loan like one offered by the FHA will typically not require such a high score.

Debt-To-Income Ratio

Conforming loans require a DTI below 50%. Non-conforming loans vary with respect to this requirement. A jumbo loan typically requires a lower DTI, while you may be able to get an FHA loan with a higher DTI.

Loan-To-Value Ratio

LTV affects your down payment. For conforming loans, you’ll need an LTV of no more than 97%, which equates to a 3% down payment. Again, this varies for non-conforming loans. A jumbo loan typically requires a higher down payment, while government-backed loans may ask for less.

 

Types Of Non-Conforming Loans

Non-conforming loans break down into a few different categories. Let’s review them.

Government Loans

Government loans are backed by the federal government. When we speak of these loans, mortgage lenders are referring to those created by the FHA, USDA and VA, and these loans each come with their own respective requirements and benefits.

FHA Loans

  • Minimum FICO® score of 580 or higher, depending on your DTI
  • Minimum down payment of 3.5%

USDA Loans

  • Minimum FICO® Score of 640 or higher with most lenders
  • No down payment required
  • Intended for those in rural areas or on the outskirts of the suburbs
  • Household income must be below 115% of the area median
  • Not currently offered by Rocket Mortgage® at this time

VA Loans

  • Median FICO® Score of 620 for Rocket Mortgage clients
  • No down payment required
  • Available for eligible active-duty servicemembers, reservists, veterans and surviving spouses of those who passed in action or as a result of a service-connected disability.

Jumbo Loans

Another common type of non-conforming loan is a jumbo loan, which comes with higher loan limits. At Rocket Mortgage, we do loans with limits of up to $2.5 million. (And that’s why, to bring back the analogy from earlier, you can see why a non-conforming jumbo loan would probably be Bruce Wayne’s best bet to mortgage the Batcave.)

The good news is that jumbo loans typically come with similar rates to any other loan. There are just a couple of things you need to know:

  • Your DTI has to be lower than it would be on a regular loan (45% is our starting point).
  • You’ll need a down payment of at least 10.01%, maybe more depending on the loan amount and your credit score.
  • We require a minimum median FICO® Score of 700 for loans up to $1 million. Higher loan limits will have more stringent credit requirements.
  • Your lender may require additional documentation due to the size of the loan.

Other Types Of Non-Conforming Loan

Beyond government and jumbo, there are other types of non-conforming loans that might allow you to:

  • Buy a piece of property that you otherwise couldn’t with a conforming loan
  • Buy a home with a derogatory credit item such as a recent bankruptcy
  • Get a tailored product from your lender to meet your unique goals

The Pros And Cons Of Non-Conforming Loans

Trying to figure out which loan is right for you? Here’s how non-conforming mortgages stack up to conforming loans.

Pros

When it comes to non-conforming loans, there are three big benefits:

  • Higher loan amounts are available in the case of jumbo loans.
  • Depending on the loan option, you might be able to buy different types of property than you could with a standard conforming loan.
  • You might be able to get a non-conforming loan if you have a negative mark on your credit, like a recent bankruptcy.

Cons

Unlike conforming loans, non-conforming loans:

  • Are offered by fewer lenders, which may limit your ability to shop around
  • May come with a higher interest rate
  • Have less standardization from lender to lender

The Bottom Line: Non-Conforming Doesn’t Mean Non-Starter

While “non-conforming” might initially sound intimidating, all it means is your loan won’t be purchased by Fannie Mae or Freddie Mac. For many home buyers, non-conforming loans are a way to secure a loan outside of typical conforming requirements.

Ready to see your personalized loan options? Apply online with Rocket Mortgage to find out more and determine the best choice for you.

This Post Has 26 Comments

  1. Generally Jumbo rates are lower rates than conforming. While Quicken jumbo loans are ones over $726,525 in high cost areas, consumers can save in those areas, by shopping with lenders whose Jumbos exceed $484,350.

    1. Hi Matt:

      I think you’re misunderstanding the point made in this article. While $726,525 is the highest any conforming loan can be, in high-cost counties, limits are set on a county by county basis. So they can be lower than $726,525 but it’s higher than the standard conforming limit of $484,350. You are correct that you rates are often lower on jumbo loans.

  2. I am retired w $48000 annual income and a few thousand in other? My expenses are low but I have approximately $65000 in debt due to divorce. I have a $100,000 HELOC. Total Debt $170000 w/ HELOC The high interest on the $70000 is problematic. I have an excellent record of on time payments dating back decades. My home is on the tax rolls at app. $460000. Could I qualify for a $180000 loan. My DTI w/ such a mortgage/taxes 43%/

    1. Hi Floyd:

      I’m not licensed to determine whether you’re qualified. That being said, we can certainly look into your options to do a cash-out refinance and roll in that HELOC. If you want to get started online, you can do so through Rocket Mortgage. Otherwise one of our Home Loan Experts will be happy to speak with you at (888) 980-6716. Hope this helps!

      Thanks,
      Kevin

  3. My home is worth about $700,000. I owe approx $192,000 on 1st + $140,000 HELOC which ends 2018 and payment is alot higher than I currently pay. I want to refinance and combine the two, but my problem is my debt-income ratio is high. My credit score is around 740-750. I have approx $25,000. 00 cc debt. I have never been late on any payment. I do have additional income (my son pays me approx $900 a month rent for living here) but not shown in my taxes. Have talked to my bank and a broker. Broker suggests a reverse mortgage which I DO NOT want. Mortgage and HELOC are held by different banks. HELOC banker says I should refinance my HELOC with a co-signer, which I don’t really want to commit anyone else. So is there absolutely NO help for me, in your expert opinion?? Oh yeah, also my income is low. I am a retiree working part-time and my last income per my taxes was $36,000. I currently pay approx $1400 on my first, which includes taxes and insurance. I curretnly pay $400 on HELOC, but going to about $1200 in 2018.

    1. Hi Alicia:

      There’s a lot of detail there. We do offer mortgages that combine HELOC’s with a first mortgage. In terms of whether we can help you, one of our Home Loan Experts can give you a lot better advice than I can in the comments. They would be licensed in your state and can really go over all of your options. You can get in touch with them at (888) 980-6716 and they would be happy to talk to you.

      Hope this helps,
      Kevin Graham

    2. You migh consider paying off the CC debt when you combine the 2 to gt your CC debt down. You’ll be able to write off the interest and pay the debt off faster. Also most lender will “Gross up” fixed income to 125% when calculating your DTI.

  4. We are in the process of obtaining a construction loan, our down payment consists of the land value and a 401k withdrawal to get to 20% down. My credit score is 721 and my husbands is 789. We were told due to late payments on store credit cards they can only approve us for a nonconventional loan with a .5% higher interest rate. So, even though we have good credit scores, no other credit issues and 20% down, we wouldn’t qualify for the best interest rates?

    1. Hi Melissa:

      We don’t do construction loans, so I can’t speak to whether there is anything specifically different about those loans. That being said, late payments are absolutely something mortgage lenders really take a look at in terms of relative risk when approving you. If you’ve had late payments, particularly in the last year or two, lenders may see that as an increased risk. You may be able to get a loan, but it’s not uncommon for it to come with a higher interest rate. I know that’s not the answer you want, but this should at least give you a better idea of where you stand.

      Thanks,
      Kevin Graham

  5. My FICO is 791
    Credit score around 780
    I’ve always worked as an independent contractor. My tax returns show low payments and low income (for tax purposes). My car will be paid off this year, never missed a CC payment.

    Since im not a full time employee and have my own business (freelancing/consulting) how can I prove my income. I don’t have a steady pay. Some months its high others its low. And most of the time i get paid cash/checks so I don’t have to pay a lot of taxes… How can i prove my income? would that be an issue?

    Thanks,
    Rima

    1. Hi Rima:

      I’m going to recommend you speak with one of our Home Loan Experts because we may have options to qualify you based on balance-loss sheets and other documentation. Every situation is different. You can get in touch with us by calling (888) 980-6716. Hope this helps!

      Thanks,
      Kevin Graham

  6. I am wondering if QL will do a non-conforming conventional loan if I have a short sale on my record. It was just over a year ago and we are wanting to buy a house about the 1 1/2 year mark after. We have good credit 725 and a DTI of 10%. We went with the short sale for 2 reasons: 1) delinquency due to financial hardship due to sudden medical expenses and other family circumstances and 2) it was underwater. Is there any room for negotiation on the amount of down payment to be able to establish a mortgage?

    1. Hi Trevor:

      I’m certainly glad to hear you’re getting back on your feet. We may have some options for you around buying after your short sale. I think the best thing to do next would be to get in contact with one of our Home Loan Experts by filling out this form or calling (888) 728-4702. They can also go over what the down payment would look like with you.

      Thanks,
      Kevin Graham

  7. i am trying to refinance my $600,000 mortgage, and while i have an ok credit, i am making aprox. $140,000 yearly but, i can only demonstrate through my statement, because my tax return show a loss… how can i handle that?

    1. Hi GPM:

      We do require both tax returns and bank statements. However, showing a loss would not automatically disqualify you. I’m going to recommend you speak with one of our Home Loan Experts by filling out this form or calling 888-728-4702.

      Thanks,
      Kevin Graham

    1. Hi Chiedu:

      That really depends on the reason you’re getting a nonconforming loan. Jumbo loans for more expensive properties are considered nonconforming loans, but they carry similar rates to conforming loans. If on the other hand, you’re getting a nonconforming loan because of a detrimental factor like a poor credit, your interest rate could very well be higher because those loans carry increased risk for the lender. Hope this helps!

      Thanks,
      Kevin Graham

  8. Hello, if I don’t have a credit score (not bad credit, but no credit at all) can I get a manually under-written 15-yr loan and avoid paying pmi if I have 30% down and the monthly payment is well below 25% of my take home pay?

    1. Hi John:

      Unfortunately, we don’t do manual underwrites for clients without credit. If you would like to start building credit, I recommend taking a look at this blog post. Our friends at QLCredit have plenty of resources as well in terms of credit tips.

      1. Why in the world would Quicken Loans® not want to loan money to people who are smart enough to stay out of debt? Seems like John would be a great person to give a loan to, he has nobody else to pay but you!

        1. Hi Jim:

          We strive to loan money to people who have shown a history of responsible debt management. We certainly encourage people to keep their debt as low as possible. However, credit is a key indicator for lenders and mortgage investors of ability to manage a monthly house payment. We must have some record of past credit history in order to evaluate potential clients. I hope this helps answer your question!

          Thanks,
          Kevin Graham

    1. Hi Shelly:

      Joe Sabatini is one of our executive power bankers. You’re in good hands! Thanks for checking!

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