Routing # 256078446
MORTGAGE KNOWLEDGE CENTER
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What is a Non-Conforming Loan?
What you'll learn: What non-conforming loans are and how they work compared to conventional loans.
EXPECTED READ TIME: 3 MINUTES
November 6, 2024 | Updated January 2, 2026
There are a variety of different loan options to choose from, and most types will come with limits on the amount of funding you are able to borrow. However, these limits typically apply to conforming loans, conventional or otherwise. If you are in the market for your dream home, though, there is an alternative option known as a non-conforming loan. These types of mortgages fall outside the conforming loan standards and can be a great option for borrowers who are able to qualify.
But what exactly are non-conforming loans and how do they work? In this article, we will detail what you need to know so you can better explore your home loan options and determine if they are right for you.
What is a non-conforming loan?
A non-conforming loan refers to mortgages that do not adhere to the regular guidelines outlined by the Federal Housing Finance Agency (FHFA) and government-sponsored enterprises (such as Fannie Mae and Freddie Mac). There are a few different reasons why a mortgage may be considered a non-conforming loan, including:
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The loan amount is larger than conforming loan limits (as of 2026, the conforming loan limit amount is $832,750)
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Your credit score or debt-to-income (DTI) ratio does not fall within typical conforming loan qualifications
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It is a non-traditionally structured mortgage (for example, it has interest-only repayments or a term that is not 15 or 30 years)
VA home loans, USDA loans and FHA loans fall into the non-conforming mortgage category. Jumbo loans are another great example, as the lending limits on them are much larger than the limits on conforming loans.
How do non-conforming loans work?
There are many lenders who offer non-conforming loans to borrowers. Some may specialize in government-backed mortgages or jumbo loan products. The good news is that the lending process is incredibly similar to that of a conforming loan. However, the key differences will be the borrower requirements you must meet to qualify and the limits on how much you are able to borrow.
Let us use VA home loans as an example. For qualifying veterans, the credit score requirements are often less than those of a conventional mortgage and do not require a down payment.
On the other hand, if you are interested in purchasing a more expensive home, then you may be more interested in a jumbo loan. In this case, the credit score qualifications are higher (typically a minimum of 700) and you will need a larger down payment. However, if you meet these requirements, you will be able to borrow more than the conforming loan limit of $832,750.
Non-conforming loans versus conforming loans
| Non-conforming loan | Conforming loan | |
| Loan limits (as of 2026) | No capped limit on jumbo loans (varies by lender), but there may be lending limits on certain government-backed mortgages | $832,750 or less, however limits can reach $1,249,125 in higher cost areas |
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Down payment requirements | As little as zero down, depending on the type of home loan, but you will often be able to qualify with a smaller down payment | Typically requires a larger down payment, most commonly at least 20% |
| Interest rates | May come with a higher interest, depending on what type of non-conforming loan you qualify for | Competitive interest rates offered by lender, but may depend on your credit score and DTI ratio |
| Availability | Less common, but lenders who offer non-conforming loans often times specialize in these mortgage products | More widely available and offered by various lenders |
Non-conforming loan pros and cons
Non-conforming loans can be a great option for borrowers who fall outside the scope of regular conforming mortgages. As with the pros, there are also cons that you should be aware of prior to applying for your mortgage.
Pros:
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More flexibility for borrowers who may not otherwise qualify for a conforming loan
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Some non-conforming loan programs offer larger loan amounts which are above the conforming loan limits
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Though not allowed on government-sponsored loans, some non-conforming loans offer a wider variety of uses for funding, including house flipping or alternative property types
Cons:
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May be more difficult to find a lender who offers non-conforming loan types
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Higher risk due to atypical repayment terms and larger loan amount
Is a non-conforming loan right for you?
Different folks have varying needs, and a mortgage that works for one does not always work for all. If you are seeking a home loan for an expensive dream house, or you do not meet borrower qualifications for a conforming loan, then the non-conforming route may be right for you.
It is recommended that you consult with a mortgage expert who can walk you through all of your possible home loan options. That way you can jump into the homebuying process with confidence that you have made the right decision for your unique situation.
For more information about PenFed Mortgages:
PenFed Mortgage:
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SIMILAR ARTICLES
Mortgage Calculator - Know Your Options
Use PenFed's free mortgage calculator and determine your monthly payment, including principal and interest. Calculate conventional, VA, and jumbo home loans.
Can I Afford a Jumbo Loan?
Discover what it takes to get a jumbo loan and whether or not it fits into your budget. A jumbo mortgage could be the best choice in today's market.
How Is a Jumbo Loan Different than a Conforming Loan?
Jumbo loans make luxury homes a reality. Read on and find out what a jumbo loan is, what makes a mortgage jumbo, and what the benefits of a jumbo loan are.
How Much Mortgage Can I Afford?
Get your home loan financing questions answered, including: Can I afford a mortgage? How much home can I afford? Can I afford to buy a home?
Home Buying Steps
Mortgage Products
Disclosures
1Conventional Loans
Except for holidays, rates are updated Monday through Friday at 10:15am EST. The advertised rates and points are subject to change. The information provided is based on 1.5 discount point, which equals 1.5 percent of the loan amount, and assumes the purpose of the loan is to purchase a property with a 30-year, conforming, fixed-rate loan. Loan amount of $400,000; loan-to-value ratio of 75%; credit score of 760; and DTI of 18% or less. The property is an existing single-family home and will be used as a primary residence. The advertised rates are based on certain assumptions and loan scenarios, and the rate you may receive will depend on your individual circumstances, including your credit history, loan amount, down payment, and our internal credit criteria. Other rates, points, and terms may be available. All loans are subject to credit and property approval.
Rates quoted require a loan origination fee of 1%; not to exceed $1,995. Speak to a PenFed Mortgage Loan Officer for additional details.
2FHA Loans
Except for holidays, rates are updated Monday through Friday at 10:15am EST. The advertised rates and points are subject to change. The information provided is based on 1.25 discount point, which equals 1.25 percent of the loan amount, and assumes the purpose of the loan is to purchase a property with a 30-year, conforming, fixed-rate loan. Loan amount of $400,000; loan-to-value ratio of 96.5%; credit score of 760; and DTI of 18% or less. The property is an existing single-family home and will be used as a primary residence. The advertised rates are based on certain assumptions and loan scenarios, and the rate you may receive will depend on your individual circumstances, including your credit history, loan amount, down payment, and our internal credit criteria. Other rates, points, and terms may be available. All loans are subject to credit and property approval.
Rates quoted require a loan origination fee of 1%; not to exceed $1,995. Speak to a PenFed Mortgage Loan Officer for additional details.
3VA Loans
Except for holidays, rates are updated Monday through Friday at 10:15am EST. The advertised rates and points are subject to change. The information provided is based on 1.375 discount point, which equals 1.375 percent of the loan amount, and assumes the purpose of the loan is to purchase a property with a 30-year, conforming, fixed-rate loan. Loan amount of $450,000; loan-to-value ratio of 95%; credit score of 760; and DTI of 18% or less. The property is an existing single-family home and will be used as a primary residence. The advertised rates are based on certain assumptions and loan scenarios, and the rate you may receive will depend on your individual circumstances, including your credit history, loan amount, down payment, and our internal credit criteria. Other rates, points, and terms may be available. All loans are subject to credit and property approval.
Rates quoted require a loan origination fee of $995.
4Jumbo Loans
Except for holidays, rates are updated Monday through Friday at 10:15am EST. The advertised rates and points are subject to change. The information provided is based on 0.75 discount point, which equals 0.75 percent of the loan amount, and assumes the purpose of the loan is to purchase a property with a 30-year, non-conforming, fixed-rate loan. Loan amount of $1,009,000; loan-to-value ratio of 70%; credit score of 760; and DTI of 18% or less. The property is an existing single-family home and will be used as a primary residence. The advertised rates are based on certain assumptions and loan scenarios, and the rate you may receive will depend on your individual circumstances, including your credit history, loan amount, down payment, and our internal credit criteria. Other rates, points, and terms may be available. All loans are subject to credit and property approval.
Rates quoted require a loan origination fee of 1%; not to exceed $1,995. Speak to a PenFed Mortgage Loan Officer for additional details.
Fixed Rate Advance Lock-In You may lock in an Annual Percentage Rate for Advances during the Advance Period. During your Advance Period, you may choose to have three separate Fixed Rate Advances locked in at any one time, with a maximum of two new Fixed Rate Advances per calendar year. Each Fixed Rate Advance must equal or exceed Ten Thousand Dollars ($10,000.00) and you may not request a Fixed Rate Advance that would cause the amount you owe to exceed your Credit Limit. The only term option for your Fixed Rate Advance is 240 months (“Fixed Rate Advance Term”). However, the term of your Fixed Rate Advance cannot exceed your Repayment Period.
Routing #256078446
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