Background

The Federal Housing Finance Agency (FHFA) sets an annual baseline conforming loan limit that determines which loans Fannie Mae and Freddie Mac can purchase. Loans at or below that limit are “conforming.” Loans above it are “jumbo” and are not eligible for Fannie/Freddie purchase, so lenders underwrite them differently and often require larger borrower reserves.

How it works

  • Conforming mortgages follow program rules (loan size, borrower credit, debt-to-income limits, property standards). Because Fannie and Freddie buy these loans, lenders can often offer standardized underwriting and lower fees.
  • Jumbo mortgages exceed the conforming limit and stay on the lender’s balance sheet or are packaged and sold to private investors. That raises lender risk and usually leads to stricter credit, income verification, and reserve requirements.

Key differences at a glance

  • Loan limits: The FHFA announces limits annually; high-cost counties have higher caps. Check the current cap at the FHFA website for the latest figure (fhfa.gov).
  • Down payment: Conforming programs can allow low down payments (some conventional options start around 3% for qualified buyers); jumbo loans commonly require 10%–20% down, though lower-LTV jumbo options exist with solid credit.
  • Credit and documentation: Conforming loans may accept credit scores around 620+ for some programs; jumbos typically favor 700+ and require full documentation of income and assets.
  • Rates and fees: Jumbos often carry slightly higher rates or fees, but spreads vary by market and borrower profile. In some rate environments, top-tier jumbo borrowers can obtain competitive rates.

Real-world examples

  • Example 1: A borrower seeking $800,000 in a metro market would hit a jumbo product if the local conforming limit is lower than $800k. Expect tighter underwriting and higher reserves.
  • Example 2: A buyer using a 3% down-payment conforming product needs to meet program-specific credit and DTI requirements that may be more lenient than jumbo underwriting.

Who is affected / who qualifies

  • Typical conforming borrower: moderate-to-good credit, modest down payment, wants predictable underwriting and lower upfront costs.
  • Typical jumbo borrower: high income or significant assets, excellent credit, ability to make a larger down payment and maintain cash reserves.

Costs, underwriting, and liquidity considerations

  • Underwriting for jumbos focuses on verified income, asset reserves (often several months of mortgage payments), and lower DTI. Lenders may require two months or more of mortgage reserves; requirements vary.
  • Private mortgage insurance (PMI) rules differ: conforming loans with <20% down often require PMI; jumbo loans may require a larger down payment or lender-specific mortgage insurance structures.
  • Liquidity risk: Because jumbos are less liquid in the secondary market, lenders price that risk into rates and fees.

Professional tips and strategies

  • Shop multiple lenders: jumbo pricing varies more between lenders than conforming pricing. I often see meaningful rate and fee differences between banks and nonbank lenders.
  • Prepare documentation: for jumbos, gather tax returns, W-2s, bank statements, retirement-account statements, and explanations for large deposits early to avoid delays.
  • Consider piggyback options carefully: combining a first mortgage with a second loan to avoid PMI can be an option, but it adds complexity and cost—run the numbers.

Common mistakes and misconceptions

  • Myth: “Jumbos are only for the ultra-wealthy.” Reality: many buyers in high-cost areas need jumbos; qualification depends on ratio of income/assets to the loan amount.
  • Mistake: underestimating reserves. Jumbo lenders commonly ask for more cash-on-hand than conforming lenders.
  • Misreading rates: a slightly higher quoted rate on a jumbo may still be a better deal after accounting for closing costs and lender credits—compare APRs and fee schedules.

Frequently asked questions

  • Can I refinance a jumbo loan? Yes. Refinancing a jumbo follows similar underwriting as a purchase jumbo and may require the same documentation and reserves.
  • Do jumbo loans always have higher rates than conforming loans? Not always. Rate spreads change with market conditions; high-credit borrowers can sometimes get jumbo rates competitive with conforming rates.
  • Where can I find the current conforming loan limit? The FHFA posts current limits each year; check fhfa.gov for the latest numbers.

Internal resources

Disclaimer

This article is educational and does not replace personalized advice. Mortgage rules and limits change; consult a licensed mortgage professional and check FHFA, CFPB, or lender disclosures for current figures and program details.

Authoritative sources