Conforming vs. Jumbo Loan

Understanding the differences between a jumbo loan and a conforming loan is essential when financing a property. Both mortgage types serve the same purpose: to help you buy a home. However, their distinct requirements and limits can significantly impact your borrowing experience.

Knowing whether a jumbo or conforming loan fits your needs can save you money and simplify the home-buying process. We'll break down the differences between these two mortgage options, ensuring you're well-informed before making a decision.

Key Takeaways

Conforming loans meet FHFA limits, while jumbo loans exceed these limits and are used for high-value properties.

Conforming loans have easier qualification standards, while jumbo loans require higher credit scores and larger down payments.

Jumbo loans typically (but not always) have higher interest rates than conforming loans due to the increased risk for lenders.

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

Homebuyers should understand the differences between a conforming loan and a jumbo loan. Choosing the wrong type can lead to higher costs and a more complicated approval process. The table below compares these loans, helping you decide which option best suits your needs.

Comparison Areas	Conforming Loans	Jumbo Loans
Lender Availability	Widely available	Limited to specific lenders
Down Payment	Typically lower (as low as 3%)	Usually higher (10% or more)
Credit Score Requirement	Lower (often 620 or higher)	Higher (usually 700 or higher)
PMI Requirement	Required if the down payment is less than 20%	Also required if the down payment is under 20%, but some lenders, such as Rocket, waive it.
Loan Limit	Up to $766,550 for most states	Upper limit determined by the lender
APR	Generally lower	Often higher due to increased risk

What Are Conforming Loans?

Conforming loans are often confused with conventional loans and conventional mortgages. A conventional loan is any home loan that is not insured or guaranteed by government agencies, such as FHA, VA or USDA loans.

Within this category, a conforming loan specifically meets the loan limits and underwriting guidelines set by the Federal Housing Finance Agency (FHFA). All conforming loans are conventional, but not all conventional loans qualify as conforming. These help ensure that these can be sold to Fannie Mae and Freddie Mac, providing lenders with more liquidity.

These loans are popular with homebuyers due to their lower interest rates and easier qualification standards. Conforming loans also offer flexible repayment terms, typically 15 to 30 years, and come in fixed and adjustable rate structures. Here are some pros and cons to consider about conforming mortgages:

Pros	Cons
Lower interest rates Easier qualification standards More lenders available	PMI is required if the down payment is less than 20% May not cover high-value properties

What Are Jumbo Loans?

Jumbo loans are mortgages that exceed the Federal Housing Finance Agency (FHFA) loan limits for conforming loans. Unlike conforming loans, they’re not eligible for purchase by Fannie Mae or Freddie Mac. While they are conventional loans, they fall outside the parameters of conforming loans due to their larger amounts.

You may consider a jumbo loan if they need to finance a high-value property. These loans are often used for luxury homes or properties in competitive real estate markets with higher prices.

Jumbo loans typically offer repayment terms ranging from 15 to 30 years and come in fixed and adjustable-rate structures. Below is a table highlighting the pros and cons of jumbo mortgages.

Pros	Cons
Can finance high-value properties Flexible repayment terms Higher borrowing limits	Higher interest rates Stricter qualification standards Limited lender availability

Conforming vs. Jumbo Loan Requirements

While conforming and jumbo loans share some basic requirements, the specifics can differ significantly. Understanding these differences can help you identify which loan suits your needs and help you prepare for your application. The table below outlines the requirements for conforming and jumbo loans:

Comparison Areas	Conforming Loans	Jumbo Loans
Credit Score	Minimum 620 required, generally easier qualification	Typically 700 or higher, some lenders require 720 or better for approval
Debt-to-Income Ratio (DTI)	Acceptable up to 50%, allowing more flexibility in borrower debt load	Typically must be 36% or lower, stricter to ensure borrower stability
Down Payment	Can be as low as 3%, PMI required if under 20%	Requires at least 10%, with some lenders asking for up to 30% down payment
Cash Reserve	Usually minimal, it varies by lender	Often must cover six to 12 months of payments to ensure borrower reliability
Appraisals	Typically requires one appraisal for property value	Often requires two appraisals due to higher property values and unique features

Conforming vs. Jumbo Loan Limits

Loan limits play a vital role in distinguishing conforming vs. jumbo loan limits. The FHFA sets these limits and adjusts them annually. For 2024, the conforming loan limit is $766,550 for most states and up to $1,149,825 for high-cost areas.

Jumbo loans, on the other hand, don't have a defined upper limit but do have a minimum. The amount you can borrow with a jumbo loan is based on your creditworthiness and ability to repay, allowing for flexibility in financing high-value properties.

Conforming vs. Jumbo Loan Rates

Understanding how these rates differ is essential when comparing jumbo and conforming loan rates. According to Zillow, the current average APR for a 30-year fixed-rate conforming loan as of July 2024 is 6.90%, while for a 30-year fixed jumbo loan rate, it is slightly higher at 7.04%.

However, several factors influence the rates you may qualify for, including your location and repayment terms. The table below lets you check the current mortgage rates for conforming and jumbo loans based on different variables.

Data filtered by:Results filtered by:

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State:Alabama

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Loan Category:Conforming Loans


5-Year ARM	7.65%
7-Year ARM	7.40%
15-Year Fixed	6.30%
30-Year Fixed	6.60%

CONFORMING AND JUMBO LOAN FEES

When securing a conforming or jumbo loan, expect to encounter several fees, including:

Origination Fees: Charges for processing the loan application.
Appraisal Fees: Costs for property valuation. Jumbo loans often require two appraisals.
Closing Costs: Various fees, including title insurance and attorney fees (in some states)

While the types of fees are similar for both loans, jumbo loans often have higher amounts due to their size and complexity. Knowing these costs helps you manage your budget effectively when comparing conforming and jumbo loans.

Conforming Loan vs. Jumbo Loan: Which One’s for You?

Knowing whether a jumbo or a conforming mortgage is better suited for your situation can save you money and simplify your home-buying process. For example, using a conforming loan for a luxury property could limit your borrowing power and increase costs. Here are some questions to ask yourself before making your choice:

What kind of property are you looking to purchase?

If you're purchasing a luxury home or property in a high-cost area, a jumbo loan might be more suitable as it can exceed conforming loan limits. A conforming loan would be more appropriate for standard properties within conforming loan limits due to easier qualification standards.

How much down payment can you afford?

A jumbo loan could be a good option if you can afford a higher down payment, typically 10% or more. Conforming loans may be better if you can only afford a lower down payment, as they can go as low as 3%. However, private mortgage insurance (PMI) will be required if it's under 20%.

What's your income level?

High-income borrowers might find jumbo loans more appropriate due to the higher loan amounts and stricter requirements. Low-to-moderate income borrowers may benefit from conforming loans, which are designed to be more accessible with lower loan amounts.

How accessible do you need the loan to be?

Conforming loans are generally easier to qualify for, with less stringent credit and income requirements. Jumbo loans, on the other hand, have stricter qualification criteria, making them less accessible but suitable for those with strong financial profiles.

How's your credit score?

A strong credit score (typically 700 or higher) may make a jumbo loan ideal due to its higher requirements. A conforming loan might be more suitable for those with a decent but not exceptional credit score (at least 620). Remember that not all lenders offer jumbo loans, and different lenders have differing credit score thresholds.

Frequently Asked Questions About Conforming vs. Jumbo Loans

Choosing between conforming and jumbo loans can be confusing for homeowners, leading to many questions about which option is best. We've addressed commonly asked questions about conforming and jumbo loans to clarify the differences and benefits of each.

What is the difference between a conventional loan and a jumbo loan?

A conventional loan is any mortgage not insured by the government. A jumbo loan is a type of conventional loan that exceeds the FHFA’s conforming loan limits.

How do interest rates on jumbo loans compare to conventional loans?

Jumbo loans typically have higher interest rates compared to conforming conventional loans due to the increased risk for lenders.

Is a conforming mortgage better than a jumbo loan?

A conforming mortgage is generally better for borrowers with lower loan amounts and who meet conforming loan limits. A jumbo loan is better for purchasing high-value properties that exceed these limits.

How do down payment requirements differ between the two loan types?

Conforming loans can require down payments as low as 3%, though PMI is needed if the down payment is under 20%. Jumbo loans usually require at least 10% to 20% down.

Are there different credit score requirements for jumbo and conventional loans?

Conforming loans typically require a minimum credit score of 620, while jumbo loans usually require a higher score, often 700 or more.

What types of properties can I purchase with each loan type?

Conforming loans are suited for standard homes within loan limits. Jumbo loans are ideal for high-value properties, luxury homes and properties in high-cost areas.

Can I refinance a jumbo loan into a conventional loan?

You can do a mortgage refinance for a jumbo loan and turn it into a conventional loan if the new loan amount meets conforming loan limits and you qualify under conventional loan criteria.

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About Zachary Romeo, CBCA

Zachary Romeo is a certified Commercial Banking and Credit Analyst (CBCA), and the Head of Loans and Banking at MoneyGeek. Previously, he led production teams for some of the largest online informational resources in higher education, with over 13 years of experience in editorial production.

Romeo has a bachelor's degree in biological engineering from Cornell University. He geeks out on minimizing personal debt and helping others do the same through people-first content.

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sources

Federal Housing Finance Authority. "FHFA Announces Conforming Loan Limit Values for 2024." Accessed October 10, 2024.