Non-Conforming Loans: Types, Requirements, and Benefits

Q: Can I refinance my Non-Conforming Loan later?

Yes. Once your loan amount or profile fits conforming standards, you can refinance into a conventional loan with a lower rate.

Q: Do Non-Conforming Loans have higher rates?

Slightly higher, since they’re not backed by GSEs, but they offer more flexibility.

Q: What types of Non-Conforming Loans exist?

Jumbo, Non-QM, DSCR, ITIN, Foreign National, Portfolio, and Bank Statement loans.

Q: What are the 2025 conforming loan limits?

$806,500 for most U.S. counties, and up to $1,209,750 in high-cost areas.(Source: FHFA 2025 Loan Limits)

Q: What makes a loan non-conforming?

It doesn’t meet Fannie Mae/Freddie Mac’s rules, usually due to high loan amounts or flexible income documentation.

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Non-Conforming Loans: Types, Requirements, and Benefits

Category

1. What Are Non-Conforming Loans?

2. The Main Types of Non-Conforming Loans

3. Non-Conforming vs. Conforming Loans

4. Pros and Cons of Non-Conforming Loans

5. When to Consider a Non-Conforming Loan

6. Why Choose Loan Factory for Non-Conforming Loans

7. FAQ: Non-Conforming Loans

What Are Non-Conforming Loans?

Non-Conforming Loans are mortgages that don’t meet Fannie Mae or Freddie Mac’s standards—the two government-sponsored enterprises (GSEs) that purchase most conforming home loans in the U.S.

A loan becomes “non-conforming” when:

The loan amount exceeds the conforming limit (a Jumbo Loan)
The borrower’s credit, income, or debt-to-income ratio doesn’t fit conforming rules
The property type or documentation falls outside standard guidelines
The loan structure doesn’t meet Qualified Mortgage (QM) standards (for example, interest-only loans)

Because these loans cannot be sold to Fannie or Freddie, they’re funded by private or portfolio lenders, offering more flexibility — but often requiring higher credit and down payments.

2025 Conforming Loan Limits

The Federal Housing Finance Agency (FHFA) sets new conforming limits each year.

Standard conforming limit (1-unit): $806,500
High-cost area limit (1-unit): $1,209,750

(Source: FHFA Loan Limits 2025) (Verified on Zillow’s 2025 Jumbo Loan Guide)

Any loan amount above these limits is automatically considered non-conforming.

Example:

If you borrow $900,000 in a county where the limit is $806,500, your loan is classified as a Jumbo Loan, which is a type of Non-Conforming Loan.

What Are Non-Conforming Loans?

The Main Types of Non-Conforming Loans

There are several kinds of Non-Conforming Loans — each designed for a specific type of borrower.

1. Jumbo Loans

For loans above conforming limits ($806,500 or $1,209,750 in high-cost areas)
Used for luxury homes, second homes, or investment properties
Typically requires 700+ credit score, 10–20% down, and low DTI ratio

Example: A $1.2 million home purchase in a county with a $806,500 limit = Jumbo Loan.

2. Non-QM Loans (Non-Qualified Mortgage)

Non-QM Loans are a broad category for borrowers who don’t fit traditional underwriting rules — like self-employed professionals, investors, or those with unique income sources.

Instead of tax returns, these programs use alternative documentation such as bank statements, assets, or DSCR calculations.

Sub-types include:

Bank Statement Loans: 12–24 months of bank deposits as income proof
Asset Depletion Loans: Qualify based on verified liquid assets
1099 Income Loans: Use contractor earnings instead of W-2s

3. HomePort Loan Program

HomePort is a Non-QM / Non-Conforming program — designed for borrowers with no job or traditional income documentation but strong financial profiles.

Ideal for:

Self-employed borrowers without W-2s or tax returns
Retirees or investors living off savings, rentals, or assets
Borrowers with high credit and cash reserves

How it works: Instead of verifying income through paystubs or tax returns, HomePort qualifies you based on:

Assets, bank statements, or credit strength
Property equity and loan-to-value (LTV)

Example:
A borrower with no active employment but $500,000 in assets and a 720 credit score may qualify for a $400,000 HomePort mortgage with 30% down.

Because HomePort doesn’t meet GSE documentation rules, it’s a Non-QM Loan — and therefore Non-Conforming.

3. DSCR Loans (Debt Service Coverage Ratio)

Created for real estate investors
Qualification depends on the property’s rental income, not personal income
If the property earns more than its monthly mortgage payment (DSCR ≥ 1.0), it qualifies
Great for long-term rentals, Airbnbs, or multifamily properties

Example: A rental property earns $3,000/month and has a $2,400 mortgage payment → DSCR = 1.25 → Qualifies.

4. Foreign National Loans

For non-U.S. citizens without a Social Security Number or U.S. credit history
Lenders verify foreign income, assets, and visa/passport
Usually require 30–40% down payment

Example: A Canadian investor buying a Miami condo provides verified bank assets and puts 35% down.

5. ITIN Loans

For borrowers who file U.S. taxes with an Individual Taxpayer Identification Number (ITIN)
Perfect for immigrants and foreign workers without SSNs
Down payment: 15–25%, depending on lender and credit history

Example: A family with ITIN income documentation buys a $400,000 home with 20% down.

6. Portfolio Loans

Funded and held in-house by the lender (not sold on secondary markets)
Offer flexible underwriting for unique cases like:
- Limited credit history
- Recent bankruptcy or foreclosure
- Unusual property types

Example: A local credit union keeps the loan in its portfolio for a borrower with strong income but short credit history.

7. Bank Statement Loans

Use bank statements (12–24 months) to verify income instead of tax returns
Popular with self-employed borrowers, freelancers, and business owners
Usually require 680+ credit score and consistent cash flow

Example: A graphic designer averages $12,000 monthly deposits—qualifies for a Non-QM mortgage.

Non-Conforming vs. Conforming Loans

Feature	Conforming Loan	Non-Conforming Loan
Loan Limit (2025)	≤ $806,500	> $806,500 (or $1.2M in high-cost areas)
Backed By	Fannie Mae / Freddie Mac	Private or portfolio lenders
Credit Score	620+	680–700+ (varies)
Down Payment	As low as 3%	Typically 10–30%
Income Verification	W-2s, tax returns	Bank statements, DSCR, assets
Interest Rates	Lower, standardized	Slightly higher (risk-based)
Flexibility	Strict underwriting	Highly customizable