Non-Conforming Loans
A Non-Conforming Loan (aka Non-QM Loan) is a mortgage that does not meet the guidelines of Government Sponsored Enterprises (GSE) aka Fannie Mae (FMNA) and Freddie Mac (FHLMC), therefore can’t be sold to the GSEs.
o GSE guidelines include a maximum loan amount (LTV), suite properties, down payment requirements, and credit requirements, along with other factors pertaining to the loan file and lender guideline requirements.
Non-QM Loans are NOT risky or overly complex
They are however, disliked by Financial Institutions because they do not conform to GSE guidelines and, as a result, are harder to sell.
o For this reason, banks will usually command a higher interest rate on a Non-Conforming Loan.
Non-QM Loan Triggers
Alternative income documentation (i.e. bank statement loan financing)
Down payment range from 10% to 30% depending on credit score, income documentation and risk factors
Key Takeaways
Need a quick summary of Non-QM loans? A cheat sheet? Look no further!
Limitations
A Non-Conforming mortgage is a home loan that does not adhere to the GSE guideline and, therefore, cannot be resold to agencies such as Fannie Mae or Freddie Mac
Higher interest Rates
Loans often carry higher interest rates than conforming mortgages.
Non QM Loan + Jumbo
Mortgages that exceed the conforming loan limit are classified as non-conforming and are called jumbo mortgages.
Other Triggers
Other than the loan size, mortgages may become non–conforming based on a borrower’s loan-to-value ratio (LTV – down payment size), debt-to-income ratio, credit score and history, and income/other documentation requirements.
FHFA Criteria + Non QM Loans
Non-Conforming loans often don’t meet FHFA (Federal Housing Financing Agency) criteria because the amount borrowed is too high, or the borrower doesn’t meet certain financial profile requirements.
Requirements
Mortgage Insurance (MI)
Jumbo Loans (a type of Non-Conforming loan) – Most lenders do not require MI, even if the Loan-to-Value (LTV) is high, but they might offset risk by requiring:
Higher interest rates
Stronger borrower qualifications (e.g., higher credit scores, lower DTI)
Other Non-Conforming Loans – If the loan is Non-Conforming for reasons other than loan size (e.g., unique property types or alternative income documentation), the lender may require MI or other risk-adjusted pricing.