When shopping for a home mortgage, understanding the difference between conforming and jumbo loans is crucial. Conforming loans comply with the guidelines and loan limits set annually by the Federal Housing Finance Agency (FHFA), which, for 2024, set the baseline conforming loan limit for a single-family home at $766,550 in most U.S. counties. These loans are eligible for purchase by government-sponsored enterprises (GSEs) like Fannie Mae and Freddie Mac, offering standardized underwriting, often lower interest rates, and generally easier qualification requirements. They typically require a credit score of 620 or higher, down payments as low as 3% (or 0% for certain VA loans), and flexible debt-to-income ratios up to about 50%. For details on conforming loan limits in your area, refer to the FHFA’s official page on Conforming Loan Limits.
Jumbo loans finance amounts exceeding these conforming limits and are often used for luxury or high-cost properties. Because jumbo loans are not purchased by GSEs, lenders retain the risk or sell them to private investors, which leads to stricter underwriting standards. These include higher credit score requirements (typically 700 to 740+), larger down payments (often 10-20% or more), lower debt-to-income ratios (often below 43%), and cash reserves of 6 to 12 months mortgage payments post-closing. Jumbo loans may also require multiple independent appraisals to support the higher loan amount. For a deeper dive into jumbo loans, visit our Jumbo Loan glossary article.
Key differences include loan limits, underwriting standards, down payment size, credit score expectations, and documentation requirements. Interest rates on jumbo loans can sometimes be competitive with conforming loans depending on market conditions and borrower qualifications, though they often carry a slight premium due to additional risk.
Choosing the right loan depends largely on the price of the home you want to buy and your financial profile. If your loan amount is within the conforming limits for your county, a conforming loan usually offers easier access and better rates. If it exceeds these limits, be prepared for the more rigorous jumbo loan process. Consulting with a qualified mortgage professional can help clarify eligibility and loan options tailored to your situation.
For more context on related concepts, see our glossary on Government-Sponsored Enterprise (GSE) Loans, and the role of Reserves in Loans.
Sources:
- Federal Housing Finance Agency, Conforming Loan Limits https://www.fhfa.gov/DataTools/Tools/Pages/Conforming-Loan-Limits.aspx
- Consumer Financial Protection Bureau, What is a jumbo loan? https://www.consumerfinance.gov/ask-cfpb/what-is-a-jumbo-loan-en-1950/
- Investopedia, Conforming Loan and Jumbo Loan definitions