If you’re ready to buy a home, have good credit and a low debt-to-income ratio, and can afford a down payment of at least 3% and closing costs, you’re probably considering a conventional mortgage. There are two main types: conforming loans and jumbo loans. Which one is right for you will depend on several factors, some of which may be beyond your control.
Here’s what you need to know about jumbo vs. conforming loans.
Key Takeaways:
- The amount you need to borrow to buy a home will be the main factor in choosing between a jumbo or conforming loan.
- The government sets requirements for conforming loans, including a maximum loan amount. It also sets a minimum down payment, credit score, and debt-to-income ratio.
- Jumbo loans typically are used when the buyer needs to borrow more than the conforming loan limit. Lenders usually require borrowers to make a larger down payment, have better credit, and set aside significant cash reserves.
Comparing Jumbo and Conforming Loans
The primary difference between jumbo loans and conforming loans is that conforming loans must meet federal requirements — primarily a maximum loan amount — while jumbo loans do not. Meeting those requirements allows lenders to sell conforming loans to Fannie Mae or Freddie Mac, reducing their risk in issuing the loan.
With jumbo loans, mortgage lenders take all the risk. Since there are no government standards to meet, lenders set stricter requirements for buyers applying for jumbo loans.
Conforming Loan vs. Jumbo Loan Requirements
| Requirement | Conforming Loan | Jumbo Loan |
| Loan amount | No more than $766,550 in most areas and no more than $1,149,825 in high-cost areas. | Anything over the conforming loan limit up to about $2 million. |
| Down payment | Minimum 3%. | 10% to 20%, depending on the lender. |
| Credit score | Minimum 620. | Minimum between 680 and 760, depending on the lender. |
| Debt-to-income ratio | Must be less than 50%. | Usually 45% or less, though some lenders may require a DTI ratio no higher than 36%. |
| Cash reserves | None. | Lenders may require enough to afford anywhere from six months to three years of expenses. |
Conforming Loans
Conforming conventional loans are the most common type of mortgage.
Offered by private lenders, conforming loans meet standards set by the Federal Housing Finance Agency. Those standards include a 2024 conforming loan limit of $766,550 for a single-family home in most parts of the United States, and $1,149,825 for homes in high-cost counties, Alaska, Hawaii, Guam, and the U.S. Virgin Islands.
Lenders can sell conforming loans to Fannie Mae or Freddie Mac. Selling the loan reduces the lender’s risk and provides the lender with cash it can use to make more loans.
Conforming loan requirements
Conforming loans generally are easier to get than jumbo loans. Here are some of the advantages of a conventional loan.
- Down payment. Your down payment can be as low as 3% of the purchase price, but you’ll need to pay for private mortgage insurance if you put down less than 20%.
- Credit score. The minimum required credit score of 620 is more lenient than lenders typically require for a jumbo loan.
- Cash reserves. Unlike with a jumbo loan, you won’t need to prove you have a reserve of cash available to pay the mortgage if your income is interrupted.
- Loan-to-value ratio. Lenders usually allow a higher LTV ratio for a conforming loan than a jumbo loan.
- DTI ratio. Lenders tolerate buyers having more debt compared to their income when underwriting a conforming loan.
- Monthly payment. While interest rates on conforming and jumbo loans usually are similar, borrowing less with a conforming loan means a lower monthly payment.
- Closing costs. Expect closing costs to be between 2% and 5% of the purchase price, so borrowing less with a conforming loan will save you money over buying a more expensive home with a jumbo loan.
Benefits of conforming loans
Conforming loans allow borrowers to get a mortgage with a lower credit score and a smaller down payment, making them cheaper overall than a jumbo loan. The borrowing cap on conforming loans limits your monthly payment. And if you’re buying a less expensive home, your closing costs also will be less than if you were to buy a more expensive home with a jumbo loan.
“The actual cost difference depends on your situation, like how good your credit is and the details of your loan,” says Carl Holman, communications manager at A&D Mortgage in Hollywood, Florida.
Remember, the conforming loan limit only applies to the amount you borrow. If you have enough cash for a larger down payment or a second mortgage, you can buy a more expensive house without needing a jumbo loan.
When to choose a conforming loan
You can choose a conforming loan only when the amount you need to borrow is within the borrowing limit. It’s likely the best choice if you have a lower credit score or limited cash to put toward a down payment and closing costs.
“Conforming loans are usually picked by first-time buyers or people who don‘t want to spend a lot on a home,” Holman says. “They‘re easier to get because they follow set rules.”
Jumbo Loans
Jumbo loans do not conform to government standards, meaning the terms are up to private mortgage lenders. Most jumbo loans are for amounts above the conforming limit, up to around $2 million.
“There are many differences between a conforming and jumbo loan, although the main difference is the loan amount,” says Brian Shahwan, a mortgage banker and licensed broker at William Raveis Mortgage in New York City. “Jumbo loans, also known as nonconforming loans, have loan amounts that exceed the conforming loan limits.”
Jumbo loan requirements
Expect stricter requirements and potentially higher costs when applying for a jumbo loan.
- Down payment. Lenders take all the risk on a jumbo loan, so expect them to require a down payment of 10% to 20%. That could be a sizable sum when buying a more expensive property.
- Credit score. You’ll need a credit score of at least 680 and possibly as high as 760.
- Cash reserves. Lenders want to know if you can pay the mortgage even with an interruption in your income. Many require you to show enough cash in reserve to pay your expenses anywhere from six months to three years.
- LTV ratio. You may find lenders who accept a 90% LTV ratio, but expect them to prefer 80% or less.
- DTI ratio. Expect lenders to require a DTI ratio of less than 45%. Some lenders may require it to be less than 36%.
- Monthly payment. Due to the higher amount borrowed, your monthly payment will be higher with a jumbo loan.
- Closing costs. Closing costs are based on a percentage of the total purchase price. Buying a more expensive property means a larger price tag to close.
Benefits of a jumbo loan
Jumbo loans are flexible for buyers who need to borrow more than a conforming loan allows. Since they usually are used to buy more expensive homes, borrowers typically come to the table in good financial shape. That reassures lenders that you can repay the loan and helps them offer interest rates comparable to those for conforming loans.
Jumbo loan costs
Buying a more expensive home means you’ll pay more in closing costs and have a higher monthly payment on your jumbo loan, but that doesn’t make the jumbo loan itself more expensive.
“Jumbo loans often have higher monthly mortgage payments, but this is generally due to the higher loan amount (not necessarily higher rates),” Shahwan says. “The misconception is that jumbo loans have higher rates, but in my experience, jumbo loans can very often have similar — or even lower — rates than conforming loans.”
When to choose a jumbo loan
If you’re looking to buy a high-priced home in an expensive area, a jumbo loan will have the higher borrowing limit you need. With strong finances and a good credit score, you can negotiate terms with your lender that work for you.
“Jumbo vs. conforming loans are more so a product of location rather than type of buyer,” Shahwan says. “Homes in areas with higher-priced and/or valued listings will typically see more jumbo loans, as even with putting 20% down, the loan amount could still exceed the conforming loan limit.”
FAQ: Jumbo vs. Conforming Loans
Here are answers to common questions about jumbo vs. conforming loans.
Not necessarily. You can make up the difference between a conforming loan amount and the purchase price and buy it without a jumbo loan.
“A borrower putting 30% down on a $1 million property in New York could get the benefits of a conforming loan,” Shahwan says.
You can deduct the amount you pay in mortgage interest from your income for tax purposes, but there is a limit. You can only deduct the interest paid on the first $750,000 you borrowed if you’re a married couple or $375,000 each if you’re married filing separate tax returns. If you borrowed more than that to buy your home, you likely won’t be able to deduct all the interest you paid.
The Bottom Line on Conforming Loans vs. Jumbo Loans
Conforming and jumbo loans fit different buyers in different situations. With a conforming loan, you get easier eligibility and a limit on how much you can borrow. With jumbo loans, you can borrow more but face more scrutiny during the application process.
“Think about how the loan fits with your long-term money goals, how much you need to put down upfront, and how your loan choice might affect your finances over time,” Holman says. “It’s not just about getting the house but making sure you can comfortably afford it later, too.”
