Key takeaways

  • A jumbo loan is a type of conventional loan, but it's considered nonconforming because it exceeds the loan limit set by the Federal Housing Finance Agency (FHFA).
  • Jumbo loans come with more stringent lending guidelines due to their risky nature.
  • Conforming loans have more relaxed credit criteria and lower down payment requirements than jumbo loans.

Technically, a jumbo loan is a type of conventional loan — which is simply a mortgage that’s not backed by the government but originated, financed and guaranteed entirely through a private lender. Still, it is not a standard mortgage.

A jumbo loan allows you to borrow a sizable amount of cash to purchase a pricier home — or an amount that exceeds conforming loan limits. Let’s look at how jumbo vs. conventional loans compare.

What is the difference between a jumbo and a conforming loan?

A conventional mortgage can be either conforming or nonconforming. The former is a mortgage that meets the requirements set by the Federal Housing Finance Agency (FHFA); the most common of these stipulates that the size of the loan be set at or below certain dollar limits. These limits vary from state to state, and even by counties within states. For 2024, the conforming loan limit is $766,550 in most areas, and up to $1,149,825 in higher-priced places.

Mortgage
When a mortgage is “conforming,” it is eligible for Fannie Mae and Freddie Mac to buy it on the secondary mortgage market. Knowing that these government-sponsored entities, major players in the mortgage industry, can purchase a mortgage greatly reduces a lender’s risk in offering it.

A jumbo loan is a conventional loan. But since it doesn’t conform to the FHFA standards due to its size, it’s considered “nonconforming.” If you’re buying a more expensive home in your area, you’ll need a jumbo loan. This allows you to borrow the amount you need for the purchase, even though that amount is higher than the conforming loan size.

Many mortgage lenders offer jumbo loans up to $3 million or $5 million. You might be able to find jumbo loans in even higher amounts, especially if you work with a mortgage broker who specializes in them.

Comparing jumbo and conforming loans

As we mentioned, jumbo and conforming loans are both conventional loans. Still, there are some key differences to be aware of.

Jumbo loans Conforming loans
Minimum credit score 700 620
Minimum down payment 20-25% 3-5%
Minimum DTI ratio 36-43% 43-50%
Cash reserves Up to 12 months Up to 6 months
Closing costs 2-5% of the loan amount 2-5% of the loan amount
Rates Higher due to elevated risk Could be lower, depending on your financial profile

Qualifying for a jumbo loan vs. conventional loan

While there are several qualifying factors that impact whether you can get a conventional loan, the most important is your credit score. While you can get a jumbo loan with the minimum credit score, the best mortgage rates go to borrowers with scores of 740 or higher. You should also be prepared to make the minimum down payment and meet the lender’s DTI thresholds.

While qualifying for a jumbo mortgage is similar to a conforming loan, there are some differences. The credit score and down payment benchmarks are much higher, and you’ll need a sizable amount of reserves. Most lenders are also a bit stricter with DTI requirements. And you’ll likely need a larger income since you’re seeking a bigger loan amount.

Mortgage rates for a jumbo loan vs. a conventional loan

Many jumbo loan rates may actually be lower than those on some conventional loan offers since lenders still want to remain competitive. Otherwise, jumbos tend to be influenced by the factors that move mortgage rates and interest rates in general, such as the benchmark federal funds rate the Federal Reserve sets. The particular interest rate you’ll get, of course, depends on your credit score, income, down payment, assets and current debt load.

Mortgage
Bankrate insights
Most jumbo loans are conventional loans (offered by private lenders vs. a government agency). However, FHA jumbo loans and VA jumbo loans do exist — though the maximum amount you can borrow may not be as big as that of conventional jumbos.

How to decide which loan is right for you

The decision to get a jumbo loan often comes down to necessity: If you’re buying in a pricey market, you’ll need a bigger mortgage. Both conventional and jumbo loans require good to excellent credit scores, but jumbo loans have extra qualifying factors like a higher income, lower DTI ratio and more reserves.

Ultimately, your homebuying budget determines whether a traditional conventional or a jumbo loan makes more sense. (One workaround, if you decide against the jumbo, is to take out a conforming loan and then a smaller piggyback loan, which will collectively finance the home purchase.) To ensure you find the best loan for your needs, it’s important to find a mortgage lender that offers jumbo loans since it is a more unique type of mortgage.

Jumbo vs. conventional loan FAQ

  • The lending guidelines are tighter for jumbo loans because the loan amounts are higher. Plus, they pose an elevated risk to lenders compared to conventional loans that conform to FHFA standards.
  • Most lenders require a down payment of at least 20 percent to get a jumbo loan. Consequently, mortgage insurance isn’t required.
  • It’s possible to refinance a jumbo loan into a conventional loan. The current balance must be at or below the conforming loan limit, which is $766,550 for 2024 (or up to $1,149,825 in high-cost areas)