A conventional mortgage that doesn't meet Fannie Mae or Freddie Mac guidelines — usually because it exceeds the conforming loan limit (making it a jumbo) or has non-standard borrower characteristics.
A non-conforming loan is any conventional mortgage that doesn't fit Fannie Mae or Freddie Mac's purchasing criteria. The most common reason a loan is non-conforming is size — above the FHFA conforming limit makes it a jumbo loan.
But non-conforming covers more than just jumbos. Loans for unusual properties (mixed-use, certain condos, manufactured homes on leased land) or unusual borrower situations (foreign nationals, very recent self-employment) can also be non-conforming. These loans stay on the lender's books or get sold to private investors instead of the GSEs.
Trade-off: more flexibility on what gets approved, often slightly higher rates and stricter terms.
Example
A buyer with a 30-day-old self-employment income source can't get a conforming conventional loan (Fannie/Freddie typically want 2 years). A non-conforming portfolio lender might still approve them at slightly higher rates.
Also known as
non-conforming mortgage, portfolio loan, jumbo loan (specific type)