- Conforming loans, which comply with limits set by the government.
- Nonconforming loans, aka jumbo loans, which exceed those limits.
Here’s a closer look at the difference between jumbo and conforming loans.
Jumbo vs. Conforming Loan: An Overview
The biggest difference between jumbo loans and conforming loans is whether they meet certain standards set by the U.S. government.
Once a year, the Federal Housing Finance Agency sets a maximum amount for loans that Freddie Mac and Fannie Mae can buy from mortgage lenders. Freddie and Fannie are government-sponsored enterprises that purchase loans from lenders and package them as investments sold on secondary markets. Lenders then can use the money they get from selling those loans to make more loans.
The FHFA sets two limits for conforming loans:
- The standard loan limit for one-unit properties, such as a single-family home, is $726,200 in 2023.
- Counties where 115% of the local median home value exceeds the conforming loan limit, and properties in Alaska, Hawaii, Guam, and the U.S. Virgin Islands, have a higher limit of $1,089,300.
You can use this map of conforming loan limit values by county to look up which counties have the higher loan limit.
If a mortgage is under the FHFA limit, it’s a conforming loan. If the mortgage exceeds that limit, it’s a jumbo loan.
Now let’s line up conforming loans and jumbo loans side by side to compare some of the key differences:
Conforming Loans vs. Jumbo Loans
|Loan type||Conforming loans||Jumbo loans|
|Loan limits||Up to $1 million to $2 million, though individual lenders set their own limits.||– $726,200 for most places in 2023.|
– $1,089,300 in certain high-cost counties in 2023.
|Minimum down payment||10%, though many lenders require 20% to 30%.||Minimum of 3%, and at least 20% to avoid paying for private mortgage insurance.|
|Minimum Credit Score||680 to 760, depending on the lender.||620|
|Maximum DTI ratio||43% to 45%, but could be lower depending on the lender.||43%|
|Maximum LTV ratio||90%, but could be lower depending on the lender.||95%|
Think a jumbo loan might be right for you? Here’s a rundown of what you’ll need to qualify, and a look at the benefits of jumbo loans.
Jumbo loan requirements
A jumbo loan is riskier for a lender to take on for two reasons: It’s a larger amount, and the mortgage can’t be sold to Fannie Mae or Freddie Mac. Lenders typically offset this extra risk with stricter eligibility requirements.
To get a jumbo loan, your lender likely will require you to have:
- A larger down payment. Many lenders will require you to make a down payment of at least 20% to qualify for a jumbo loan.
- A higher credit score. Lenders use your credit score to determine how likely you are to repay the loan.
- More in cash reserves. Another way lenders confirm you can afford a jumbo loan is by checking how much cash you have. Some lenders will require you to have saved at least 12 months’ worth of expenses to be approved for a jumbo loan.
- A lower debt-to-income ratio. Your DTI ratio is a figure that measure how much of your income is taken up by paying off debt. Lenders usually require a lower DTI ratio to get a jumbo loan.
- A loan-to-value ratio of 80% or lower. Your LTV ratio compares how much you’re borrowing to the value of the property. Lenders usually require an LTV ratio no higher than 80% to get a jumbo loan.
Jumbo loans also typically come with:
- Higher monthly payments. Before you take out a jumbo loan, make sure you can afford to pay more each month. Because you’re borrowing more money, you’ll owe more each week.
- Higher closing costs. Jumbo loans require you to pay more upfront in closing costs, in part because the underwriting process is more thorough.
- Competitive interest rates. While you may think mortgage interest rates would be higher on a jumbo loan, they actually tend to be comparable to interest rates on conforming loans.
Benefits of a jumbo loan
Here are some of the advantages of getting a jumbo loan:
- You can buy a more expensive home.
- They come with competitive interest rates compared to conforming loans.
- They have flexible loan terms.
When to choose a jumbo loan
Here are some instances when it can make sense to take out a jumbo loan:
- You’re looking to take out a mortgage that exceeds conforming loan limits.
- You’re buying in a high-cost area.
- You have a high income.
- You have very good credit.
Conforming loans come with limits on how much you can borrow, but the eligibility criteria tend to be looser compared to jumbo loans. Here’s what you can expect if you take out a conforming loan.
Conforming loan requirements
Because conforming mortgages can be sold to Fannie Mae or Freddie Mac, they pose less risk to your lender if you default on your loan. As a result, they typically are easier to get.
Compared to jumbo loans, conforming loans typically come with:
- A lower credit score requirement. If your credit is decent but not stellar, a conforming loan will be easier to get approved for.
- A lower down payment. Conforming loans allow for a down payment as low as 5%, and some lenders even go as low as 3%.
- No requirement for cash reserves. If you’ve been saving up for a down payment and closing costs, you might not have much left over.
- A higher DTI ratio requirement. This is helpful if you are paying off student loans and have some credit card debt.
- A higher LTV ratio requirement. If you’re making a lower down payment, conforming loans can be easier to qualify for compared to jumbo loans.
With a conforming mortgage, you can also expect to have:
- A lower monthly payment. A perk of conforming loans is that the monthly payments can be much more affordable compared to jumbo loans.
- Lower closing costs. Closing costs tend to be 2% to 5% of the total purchase price. Since conforming loans are smaller, the closing costs are less expensive.
- Competitive interest rates. With conforming loans, you can expect interest rates that match market conditions and your credit history.
Benefits of conforming loans
Here are some of the advantages of taking out a conforming loan:
- Looser eligibility requirements.
- You can become a homeowner without sky-high monthly payments.
- Lower closing costs compared to jumbo loans.
- Competitive interest rates.
When to choose a conforming loan
Here are some cases where it can make sense to get a conforming loan:
- You’re buying a house that is under the loan limit in your area.
- You don’t make enough money to afford a jumbo loan.
- You have decent credit.
Jumbo Loan Rates vs. Conforming Loan Rates
Although a jumbo loan poses a higher risk to the lender, it doesn’t necessarily come with a higher interest rate. The rate your lender charges will be determined by your credit score, income, and other factors.
But even if the interest rate is the same on a jumbo loan and a conforming loan, jumbo loans are larger than conforming loans, so you can expect to make a higher monthly payment, pay more interest, and pay more overall for your home. In addition, the cost of getting a jumbo loan typically is higher because you usually have higher closing costs and need to come up with a larger down payment.
Jumbo Loan FAQ
Here are answers to some common questions about jumbo loans.