what is a non conforming mortgage 
a non conforming mortgage is a mortgage that does not meet the guidelines of government sponsored enterprises gse such as fannie mae and freddie mac and therefore cannot be sold to them gse guidelines include a maximum loan amount suitable properties down payment requirements and credit requirements among other factors a non conforming mortgage may be contrasted with a conforming mortgage understanding non conforming mortgagesnon conforming mortgages are not bad loans because they are risky or overly complex financial institutions dislike them because they do not conform to gse guidelines and as a result are harder to sell for this reason banks will usually command a higher interest rate on a non conforming loan although private banks initially write most mortgages they often end up in fannie mae s and freddie mac s portfolios these two gses buy loans from banks and package them into mortgage backed securities mbs which sell on the secondary market an mbs is an asset backed security abs secured by a collection of mortgages originating from a regulated and authorized financial institution while there are private financial companies who will buy package and resell an mbs fannie and freddie are the two largest purchasers banks use the money from the sales of mortgages to invest in offering new loans at the current interest rate but fannie mae and freddie mac can t buy just any mortgage product the two gses have federal rules limits to buying loans deemed relatively risk free these loans are conforming mortgages and banks like them precisely because they will readily sell by contrast mortgages fannie mae and freddie mac cannot buy are inherently riskier for banks to write these difficult to sell loans must either stay in the bank s portfolio or be sold to entities specializing in the secondary market for non conforming loans types of non conforming mortgagesthere are various borrower situations and types of loans that fannie and freddie deem as non conforming the most common non conforming mortgage is often called a jumbo mortgage loans written for an amount more substantial than the fannie mae and freddie mac limits in 2024 that limit in most u s counties is 766 550 but in some high cost areas such as new york city or san francisco it can be as high as 1 149 825 mortgages don t have to be jumbo to be non conforming a low down payment can trigger non conforming status too the threshold varies but could be 10 on a conventional mortgage or as little as 3 on a federal housing administration fha loan upfront fees on fannie mae and freddie mac home loans changed in may 2023 fees were increased for homebuyers with higher credit scores such as 740 or higher while they were decreased for homebuyers with lower credit scores such as those below 640 another change your down payment will influence what your fee is the higher your down payment the lower your fees though it will still depend on your credit score fannie mae provides the loan level price adjustments on its website also a factor is the buyer s debt to income ratio dti which typically must not exceed 43 to qualify as a conforming loan a credit score of or above 660 is usually required as well the type of property can also determine if a mortgage is non conforming for example buyers of condos often get tripped up when they learn their dream vacation unit is non conforming because the complex is considered non warrantable that includes condo associations where a single entity such as the developer owns more than 10 of the units other pitfalls include if a majority of the units are not owner occupied if more than 25 of the square footage is commercial or if the homeowners association hoa is in litigation 