What is a Non-Conforming Loan?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 12 August 2019
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Also known as a jumbo mortgage, a non-conforming loan is a mortgage arrangement that exceeds what is considered the average limits associated with government support mortgage loans. The concept of a non-conforming loan is more common in the United States than in other countries. In the USA, the identification of a mortgage as a non-conforming loan is normally based on how the terms and conditions of the loan compare to guidelines utilized by the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation.

The main difference between a non-conforming loan and a conforming real estate loan has to do with the total amount of funds extended by the lender to a borrower. Conforming loans carry maximum limits on the total amount of the loan based on the type of real estate purchase that is completed using the proceeds from the loan arrangement. There is one limit for single family dwellings, a different limit for dwellings providing living space for two families, and higher limits for larger properties. Whenever the loan amount exceeds the standard limit for the type of dwelling purchased, the mortgage is referred to as non-conforming.


A second potential factor that could classify a mortgage as a non-conforming loan has to do with the credit rating of the buyer. In some cases, the classification has to do with a lack of credit history. If there is some evidence of recent financial difficulties, the buyer may not be considered the best credit risk. However, if the lender has enjoyed a profitable business relationship with the buyer in the past, the loan may still be approved.

At other times, the loan may be considered non-conforming when the collateral that is accepted is considered unusual. Essentially, there is something about the structure of the loan or the type of collateral accepted that is outside of normal bank standards. Still, there is something about the borrower that indicates to the lender that it is worth assuming the risk and extending an amount above and beyond the usual standards.

While a non-conforming loan does fall outside the usual standards, the format is utilized regularly. This type of mortgage arrangement is more likely to occur when there are extenuating circumstances that convince the lender of the debtor’s ability to comply with the terms and conditions, even if a portion of the circumstances are somewhat unusual.


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