What’s the Difference Between Jumbo Loans and Conforming Loans?

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If you’re a first-time homebuyer, you probably are trying to figure out which type of loan you need.

Conventional loans are the most common type of mortgage, and they come in two flavors:

  • 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 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 $647,200 in 2022.
  • A higher limit is set for counties where 115% of the local median home value exceeds the conforming loan limit, and for properties in Alaska, Hawaii, Guam, and the U.S. Virgin Islands. That limit for a single-family home loan is $970,800 in 2022.

You can use this map of conforming loan limit values by county to look up which counties have the higher loan limit.

If a loan meets the FHFA limit, it’s a conforming loan. If the loan exceeds that limit, it’s a jumbo loan.

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.
  • A higher credit score.
  • More in cash reserves.
  • A lower debt-to-income ratio.
  • A loan-to-value ratio of 80% or lower.

Jumbo loans also typically come with:

  • Higher monthly payments.
  • Higher closing costs.
  • Competitive interest rates.

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.
  • A lower down payment.
  • No requirement for cash reserves.
  • A higher DTI ratio requirement.
  • A higher LTV ratio requirement.

With a conforming mortgage, you can also expect to have:

Jumbo Loan vs. Conforming Loan: How Much Do They Cost?

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.

Even though 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.

Conforming vs. Jumbo Loan Comparison

Now that you have the basics down, 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 typeConforming loansJumbo loans
Loan limits$647,200 maximum loan amount for most places in 2022; $970,800 in certain high-cost counties in 2022Up to $1 million to $2 million, though individual lenders set their own limits
Minimum down paymentMinimum of 3%, and at least 20% to avoid paying for mortgage insurance10%, though many lenders require 20% to 30%
Minimum credit score620680 to 760, depending on the lender
Maximum DTI ratio43%43% to 45%, but could be lower depending on the lender
Maximum LTV ratio95%90%, but could be lower depending on the lender

Jumbo Loan FAQ

Here are answers to some common questions about jumbo loans.

Is jumbo loan more expensive?

Yes. With a jumbo loan, you’re borrowing more money. This means you’ll be making higher monthly payments, and paying more interest than you would with a conforming loan that has the same interest rate and loan term. In addition, the closing costs usually are higher for a jumbo loan.

What credit score do you need for a jumbo loan?

Credit score requirements are stricter for jumbo loans than for conventional loans. The requirements vary depending on the lender. Some lenders will approve you for a jumbo loan with a credit score of 680, while other lenders will require a score of at least 760.

What are the benefits and drawbacks of a jumbo loan?

A jumbo loan can finance the purchase of a more expensive home, which exceeds limits set by the FHFA. However, the cost of obtaining the jumbo mortgage likely will be higher than for a conforming loan. You also will be facing a higher monthly payment and stricter eligibility requirements.

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