Jumbo Mortgage vs Conforming Loan: What’s the Difference?

If you’re in the market for a mortgage and have your sights set on a more expensive property, you may need a jumbo home loan. A jumbo loan is a conventional loan, but because it falls outside the lending limits set by the Federal Housing Finance Agency (FHFA), it is not a conforming mortgage.

As the name suggests, jumbo loans have larger loan limits that exceed standard mortgage loans. There are pros and cons to getting a jumbo loan and some factors to consider.

To help you decide which is best for you, we’ll walk you through conventional loans, jumbo loans, conforming loan limits, and jumbo loan requirements.

Conforming Loans vs. Jumbo loans: the basics

A jumbo loan is a type of conventional mortgage loan. Like all conventional loans, the jumbo loan is not insured or guaranteed by the government. But because a jumbo mortgage falls outside the conforming loan limits and other criteria established by the FHFA, it is considered a nonconforming loan.

A conforming loan, on the other hand, is a type of mortgage in line with the FHFA annual limit. Conforming loans meet standards that allow them to be purchased by Fannie Mae and Freddie Mac.

Because jumbo home loans do not come with government guarantees, the lender is not protected from losses in the event of a default on the loan.

The main difference between a conforming loan and a jumbo loan is the maximum limit on loan amounts. In 2024, most states’ conforming loan limit for a one-unit property is $766,550. For the most expensive areas (e.g. Alaska, Hawaii, Guam, and the U.S. Virgin Islands), this number rises to $1,149,825.

Jumbo mortgages tend to have more stringent lending criteria and typically require a higher credit score, a lower debt-to-income (DTI) ratio, and a larger down payment. Because you’re taking out a larger loan, your mortgage payments are likely to be more expensive.

Conforming loans usually have more relaxed credit and financial criteria and allow for smaller down payments. More mortgage lenders offer conforming loans than non-conforming loans.

Advantages of a conforming loan

Let’s see the advantages of a conforming loan:

  • Easier to qualify. Because lenders consider conforming loans less risky than jumbo loans, they usually have less stringent financial requirements, such as lower minimum credit and income scores and higher DTI ratios.
  • Lower down payments. The minimum down payment for a conforming loan is 3% of the loan amount, while the minimum payment for a jumbo loan is usually between 10% and 20% of the loan amount.
  • More lenders offer them. Because conforming loans can be sold to Fannie Mae or Freddie Mac, they are more common than nonconforming loans.

Advantages of a jumbo loan

Here are some advantages of a jumbo loan:

  • Higher loan amounts. If you want to buy in a more expensive area or a larger home, you can tap into a wider range of homes.
  • Purchase a more desirable property. With larger loan amounts, you may be able to purchase a more desirable home in a better area or a home with high-end, luxurious features.
  • Access to properties with multiple units. You can tap into financing to purchase a multi-unit property, which you could use to collect rental income.

What is the difference between conventional loans and conforming loans?

Conventional loans fall into a broad category of private, non-government mortgages. Conventional loans, which are not guaranteed or insured by a federal agency, can be conforming or non-conforming (government-guaranteed loans such as FHA loans, USDA loans, and VA loans are not conventional loans). Conforming loans meet Fannie Mae and Freddie Mac guidelines, while non-conforming loans, such as jumbo loans, do not.

Comparison of Jumbo Mortgages and Conforming Mortgages

So how do jumbo and conforming loans compare? Let’s look at some of the key differences:

Maximum loan amount

The maximum mortgage amount for conforming mortgages in most states is $766,550, although some counties limit it to $1,149,825. A jumbo mortgage exceeds these amounts.

Interest rates

Historically, interest rates for conforming mortgages are lower than jumbo loans because lenders consider them less risky.

Advance payment

Jumbo mortgages typically require a larger down payment, ranging between 10% and 20% of the home loan amount. The minimum down payment for a conforming loan starts at 3% of the home loan amount. In either case, a down payment of less than 20% usually means you’ll have to pay private mortgage insurance.

Credit score

The minimum credit score for conforming loans is 620. For jumbo loans, you will need a higher credit score, at least 700.

Types of Loan

Like other conventional loans, jumbo loans are available as adjustable-rate mortgages or fixed-rate mortgages.

Debt-to-income ratio

When it comes to debt-to-income ratio, the lower the better. For conforming loans, most lenders will look for a DTI ratio that limits you to 45% of your monthly income if you meet the minimum credit score and asset requirements. Otherwise, the DTI ratio can be as high as 36%. For jumbo loans, the ideal DTI ratio is lower. Lenders are looking for borrowers with DTIs no higher than 43%.

Loan-to-value (LTV) ratio.

Lenders like to see an 80% LTV ratio for conforming loans, but the absolute maximum for Fannie Mae-backed mortgages is no more than 97% on a conventional loan for first-time borrowers. For mortgages backed by Freddie Mac, the maximum LTV ratio is 95%. The LTV ratio for jumbo loans may be more stringent and can range from 80% to 90%.

Cash reserves

Your cash reserves are liquid assets you can access, which could include money stashed in a savings account, certificates of deposit, stocks, or the cash value in an insurance policy. For conforming conventional loans, there is technically no minimum reserve requirement for a single-unit primary ownership, but you may be required to have up to six months of cash reserves depending on your credit score and debt-to-income ratio. For non-conforming loans such as jumbo loans, you typically need a larger stock of cash reserves, six to twelve months, to demonstrate that you can cover your monthly mortgage payments.

How to Qualify for a Jumbo Loan vs. a Conforming Loan

Requirements will vary depending on the lender and specifics such as the loan amount and location of the property. That said, there are some general parameters on how to qualify for a jumbo loan versus a conforming loan.

You typically need a higher credit score for a jumbo loan. You also usually need a larger down payment and more cash reserves. The LTV ratio is also lower for jumbo loans.

Should you get a conforming loan or a jumbo loan?

If the financing you need for a home exceeds the conforming loan limit of $766,550 for 2024, you likely need a jumbo mortgage. The advantages of a jumbo loan are higher loan limits, more competitive interest rates, and the ability to obtain a more desirable property. If you prefer to get a conforming loan, consider looking at lower priced properties.

The bottom line

While there are some differences between a conforming loan and a jumbo loan, the main one is the loan limit set annually by the FHFA. If you’re in the market to buy a home, review the requirements and rates of each type of loan to help you decide what’s best for your needs.

Frequent questions

You can work with a mortgage lender that offers jumbo loans. Another option is to look for a mortgage broker who specializes in jumbo loans.

Factors that affect your jumbo loan interest rate include your credit score, debt-to-income ratio, income and financial assets. The type of property, down payment and loan term can also play a role in determining your interest rate.

The FHFA sets a conforming loan limit each year. In 2024, the conforming mortgage limit for a single-unit property in most states is $766,550.

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