Jumbo vs. Conventional Loan: How Are They Different?
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Aditya Agarwal
Written By
Aditya Agarwal
Author, Houzeo
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Aditya A. is a passionate content writer with a flair for storytelling. He is adept at conducting research, crafting compelling narratives, and delivering high-quality content accurately.
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Edited By
Megha Mulchandani
Edited By
Megha Mulchandani
Editor, Houzeo
About
Megha M. is a content editor who loves to play with words. Apart from this, she is a theater artist and a public speaker who transforms into various personas on stage.
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Jumbo loans are essentially conventional loans. However, because they fall above FHFA loan limits and don’t have the government’s backing, they’re known as non-conforming loans. Last year, jumbo loans had a market share of 32%.
The maximum loan limit for conforming loans for a single unit is between $766,550 and $1,149,825, depending upon the location. If you wish to purchase a house that costs more than the above figure, then applying for a jumbo loan would be a wise decision.
📉 Jumbo vs. Conventional Mortgage
As of December 2023, the average 30-year and 15-year fixed mortgage APR for jumbo loans is 7.54% and 6.85%, respectively.
It’s harder to get a jumbo loan than a conventional loan due to its size and strict underwriting process.
Conventional loans have lenient guidelines and lower requirements compared to jumbo loans.
Differences Between Jumbo and Conventional Loan
There are two types of loans, conforming and non-conforming loans. Jumbo loans and conventional loans fall into these categories.
Conforming Loans: This is a type of mortgage that meets the loan limits of the FHFA.
Non-conforming Loans: These are the types of loans that are not backed by GSEs hence, they don’t have any loan limits. Moreover, they cannot be sold to Fannie Mae and Freddie Mac.
Jumbo loans are also non-conforming loans, like portfolio loans. Most people opt for them to get large amounts of money that exceed FHFA loan limits. However, It’s riskier than conforming conventional loans, as the mortgage has no guarantee or insurance.
What Are Conventional Loans?
Conventional mortgages are those that meet the loan limits set by GSEs like Fannie Mae and Freddie Mac. However, they don’t have the backing of government agencies.
Jumbo vs. Conventional Loan: A Comparison
Here is a comparison between jumbo loans and conventional loans based on their requirements:
Qualifications
Jumbo Loans
Conventional Loans
Maximum Loan Amount (1 unit)
Multiple Million Dollars
$766,550 to $1,149,825 (depending on the location)
Down Payment
20% or more
3% to 20%
LTV Ratio
Less or equal to 89.99%
Less or equal to 97%
Maximum Debt-to-Income Ratio
45%
50%
Credit Score
680 or higher
Preferably 620
Cash Reserves
Up to 12 months
Up to 6 months
Interest Rates on Jumbo and Conventional Loans
You are likely to pay higher interest on a jumbo mortgage than on a conventional loan. This is simply because jumbo loans allow you to borrow more money but can be a risky investment for the lender. However, in some cases, you may get lower interest rates than conventional loans.
The difference between the interest rates on both types of loans is largely due to market conditions, and it is typically between 0.25% and 1%.
Pros and Cons of a Jumbo Loan
Like every other loan, a jumbo loan has its pros and cons.
Offers high interest rates in the case of low credit scores.
It comes with stricter debt-to-income requirements.
Bottom Line
A jumbo loan is a plausible option if you don’t qualify for conventional loan limits. However, it can be tough to qualify for a jumbo loan. This is because it has a strict underwriting process and different loan requirements.
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Frequently Asked Questions
Do jumbo loans have lower interest rates?
Lenders keep competitive interest rates for jumbo loans. Because of this and market conditions, it is possible to get lower interest rates on a jumbo loan than on a conforming loan.
Is it harder to qualify for a jumbo loan than for a conventional loan?
Yes, it can be harder to qualify for a jumbo loan because they're larger and pose a higher risk for the lender.
Do jumbo loans require PMI?
Since jumbo loans require a higher down payment of 20% or more, they typically don't require private mortgage insurance.