Jumbo Loan vs. Conventional Loan: A 2024 Guide to Key Differences

For homebuyers considering properties above a certain price point, understanding the distinction between a conforming conventional loan and a jumbo loan is the critical first step. The primary difference is the loan amount relative to limits set by the Federal Housing Finance Agency (FHFA). While both are conventional mortgages not backed by a government agency, jumbo loans exceed these limits and come with significantly stricter qualification criteria, including higher credit score requirements and larger down payments.

What Is the Difference Between a Conforming Loan and a Jumbo Loan?

A conventional loan is a mortgage that is not insured or guaranteed by a government agency. Most conventional loans are conforming loans, meaning they adhere to the loan limits and underwriting guidelines set by the FHFA for purchase by government-sponsored enterprises like Fannie Mae and Freddie Mac.

For 2024, the baseline conforming loan limit for a one-unit property is $766,550. In high-cost areas, this limit rises to $1,149,825. A jumbo loan is a type of conventional mortgage used to finance a property that exceeds these local conforming loan limits. Because they are too large to be sold to Fannie Mae or Freddie Mac, lenders assume more risk, leading to different borrower requirements.

The table below outlines the fundamental differences in qualification criteria.

Note: Debt-to-Income (DTI) Ratio is a key metric lenders use, calculated by dividing your total monthly debt payments by your gross monthly income. Loan-to-Value (LTV) Ratio is the loan amount divided by the home's appraised value.

How Do Jumbo and Conventional Loan Requirements Compare?

The elevated risk for lenders directly translates into more rigorous qualification standards for jumbo loans. Here’s a closer look at the key requirements:

• Credit Score: While a credit score of 620 may be sufficient for a conforming loan, jumbo lenders typically seek scores of 700 or higher to ensure exceptional creditworthiness.
• Down Payment: The most significant difference often lies in the down payment. Jumbo loans routinely require a minimum of 10% down, with many lenders preferring 20% to minimize their risk. In contrast, conforming loans offer programs with down payments as low as 3%.
• Debt and Cash Reserves: Lenders need strong assurance that you can manage a large mortgage payment. This means your DTI ratio must be lower, often below 43%. Furthermore, you must demonstrate substantial cash reserves—enough to cover 6 to 12 months of mortgage payments—in your bank accounts after closing.

Are Jumbo Loan Interest Rates Higher Than Conventional Rates?

A common assumption is that jumbo loans always carry higher interest rates due to the larger loan amount. However, this is not a universal rule. While jumbo rates can be higher, they are sometimes competitive with or even lower than conforming rates. Lenders determine your rate based on your complete financial profile, including your credit score, DTI, and the overall loan-to-value ratio. The health of the broader economy and housing market also plays a significant role.

When Should You Consider a Jumbo Loan?

Based on our experience assessment, a jumbo loan is a practical option only for a specific subset of well-qualified buyers. According to 2023 data from the Home Mortgage Disclosure Act, conforming loans were used in the vast majority of home purchases.

Consider a jumbo loan if:

• You are purchasing a property that exceeds the conforming loan limit for your county.
• You have a strong credit profile (FICO score of 700+).
• You can afford a down payment of 10% or more.
• Your DTI ratio is below 43%.
• You have sufficient cash reserves to cover 6-12 months of housing payments.

A conforming conventional loan is likely the better choice if:

• The home's purchase price is at or below the local loan limit.
• You are a first-time or moderate-income buyer seeking a lower down payment option (as low as 3%).
• Your DTI ratio is higher, though still below 50%.

The decision between a jumbo and conventional loan hinges on the property's price and your financial strength. Jumbo loans provide access to higher-priced real estate but demand superior credit and significant liquid assets. For most buyers whose target homes fall within conforming limits, a conventional loan offers a more accessible path to homeownership with flexible qualifying criteria.