When you’re on the hunt for your dream home, you’ll come across a variety of mortgage options. One of the most common questions we hear from homebuyers is: What’s the difference between a jumbo loan and a conventional loan? Understanding these two loan types can make a big impact on how you finance your purchase, especially if you’re considering a higher-priced property.

What is a Jumbo Loan?

A jumbo loan is a type of mortgage used to finance homes that exceed the limits set by the Federal Housing Finance Agency (FHFA). These limits vary by location but are generally around $766,550 in most areas as of 2024. In high-cost regions, like parts of California or New York, the limit can be higher.

Since jumbo loans exceed the “conforming loan limits” that government-sponsored enterprises like Fannie Mae and Freddie Mac will purchase or guarantee, they are considered non-conforming loans. This means lenders take on more risk when issuing a jumbo loan because there is no government backing, leading to stricter qualification criteria.

Key Features of a Jumbo Loan:

• Higher loan amounts (exceeds conforming limits)

• Stricter credit score requirements (often 700+)

• Larger down payments (typically 10-20% minimum)

• Lower debt-to-income (DTI) ratios expected

• Additional documentation (e.g., proof of significant reserves)

Jumbo loans are commonly used for luxury properties, high-cost markets, or for buyers who want to finance more expensive homes without making a huge down payment upfront.

What is a Conventional Loan?

A conventional loan, on the other hand, is a mortgage that falls within the conforming loan limits set by the FHFA and is eligible to be purchased by Fannie Mae or Freddie Mac. Because these loans are backed by these government-sponsored enterprises, they come with more standardized and often more flexible terms.

Key Features of a Conventional Loan:

• Loan amounts within conforming limits

• Lower credit score requirements (typically 620+)

• Down payments as low as 3% (for qualified borrowers)

• Easier qualification process

• Can avoid private mortgage insurance (PMI) with 20% down

Conventional loans are the most common choice for average-priced homes and first-time buyers due to their accessibility and competitive rates.

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

Which Loan is Right for You?

If you’re shopping in a market where home prices exceed conforming loan limits or you have your eye on a luxury property, a jumbo loan may be necessary. However, if your home purchase falls within the standard price range, a conventional loan will likely offer better terms and an easier path to approval.

Before deciding, it’s always best to work with a trusted mortgage advisor who can review your financial situation and help you determine which option best suits your needs and goals.