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

If you’re on the hunt for a mortgage and have your eye on a pricier property, you might need a jumbo home loan. A jumbo loan is a conventional loan, but since it doesn’t fall under the loan limits set by the Federal Housing Finance Agency (FHFA), it’s not a conforming mortgage. 

As the name implies, jumbo loans have bigger borrowing limits that surpass standard mortgage loans. There are pros and cons to getting a jumbo loan, and a few 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, a jumbo loan is not insured or guaranteed by the government. But because a jumbo mortgage doesn’t fall within conforming loan limits and other criteria the FHFA sets, it’s considered a nonconforming loan.

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

Because jumbo home loans don’t come with government guarantees, the lender isn’t protected against losses if you default on your loan. 

The main difference between a conforming loan and a jumbo loan is the cap on loan amounts. In 2024, most states’ conforming loan limit for a single-unit property is $766,550. For higher-priced areas (i.e., Alaska, Hawaii, Guam and the US Virgin Islands), this number bumps up to $1,149,825. 

Jumbo mortgages tend to have more stringent lending criteria, and you typically need a higher credit score, a lower debt-to-income (DTI) ratio and a bigger 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. A higher number of mortgage lenders offer conforming loans versus nonconforming loans. 

Benefits of a conforming loan

Let’s look at the advantages of a conforming loan: 

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

Benefits of a jumbo loan 

Here are some advantages to 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 broader range of homes. 
• Buy 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 luxurious, high-end features. 
• Access to multi-unit properties. You can tap into financing to buy a multi-unit property, which you could use to rake in rental income. 

What is the difference between conventional vs. conforming loans? 

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

Comparing jumbo and conforming mortgages 

So, how do jumbo and conforming loans stack up against one another? 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, though some counties cap it at $1,149,825. A jumbo mortgage exceeds those amounts.

Interest rates

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

Down payment

Jumbo mortgages typically require a higher down payment, anywhere from 10% to 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 for private mortgage insurance. 

Credit score

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

Loan types

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 ratios, the lower, the better. For conforming loans, most lenders will look for a DTI ratio that caps at 45% of your monthly income if you meet the minimum credit score and asset requirements. Otherwise, your DTI ratio can be up to 36%. For jumbo loans, the ideal DTI ratio is less. Lenders are looking for borrowers with DTIs that are no higher than 43%. 

Loan-to-value (LTV) ratio

Lenders like to see an LTV ratio of 80% for conforming loans, but the absolute max for Fannie Mae-backed mortgages is no greater than 97% on a conventional loan for first-time home loan borrowers. For Freddie Mac-backed mortgages, the maximum LTV ratio is 95%. The LTV ratio for jumbo loans might be stricter and can cap anywhere 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 deposits, stocks or the cash value in an insurance policy. For conforming conventional loans, there is technically no minimum reserve requirement for a primary, single-unit property, but you could be required to have up to six months of cash reserves depending on your credit score and debt-to-income ratio. For nonconforming loans like jumbo loans, you typically need a more robust stock of cash reserves, anywhere from six to 12 months, to show that you can cover monthly mortgage payments. 

How to qualify for a jumbo loan vs. a conforming loan 

The requirements will vary depending on the lender and specifics like 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 jumbo loan?

If the financing you need for a home exceeds the conforming loan limit of $766,550 for 2024, you’ll likely need a jumbo mortgage. The advantages to a jumbo loan are higher loan limits, more competitive interest rates and the option to get a more desirable property. If you prefer to get a conforming loan, consider looking into properties with a lower price tag.

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