Conforming vs. Jumbo Loans

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Updated: November 1, 2024

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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

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

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

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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

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
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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:
State:
State:Alabama
Loan Category:
Loan Category:Conforming Loans
5-Year ARM7.65%
7-Year ARM7.40%
15-Year Fixed6.30%
30-Year Fixed6.60%
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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.

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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:

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    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.

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    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%.

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    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.

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    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.

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    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?
How do interest rates on jumbo loans compare to conventional loans?
Is a conforming mortgage better than a jumbo loan?
How do down payment requirements differ between the two loan types?
Are there different credit score requirements for jumbo and conventional loans?
What types of properties can I purchase with each loan type?
Can I refinance a jumbo loan into a conventional loan?

About Zachary Romeo, CBCA

Zachary Romeo, CBCA headshot

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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