Jumbo vs. conventional loans: Which is better?

Peter Warden
Peter Warden
The Mortgage Reports Editor
September 13, 2021 - 7 min read

Jumbo vs. conventional loan overview

The choice between a jumbo or conventional loan is usually easy.

Most conventional loans have to be within conforming loan limits. That means your loan amount would have to be under $ in most of the U.S. If you need a bigger loan amount, you’ll typically use a jumbo loan.

Of course, there are some key differences you’ll want to be aware of when buying or refinancing with a jumbo loan. For instance, you’ll need a higher credit score and bigger down payment. Here’s what you should know.

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What’s the difference between a jumbo and conventional loan?

Most conventional loans have to be within local loan limits set by Fannie Mae and Freddie Mac. Jumbo loans, on the other hand, are for mortgage amounts above conforming loan limits. So jumbo mortgages essentially pick up where conventional loans leave off.

  • In 2022, in most of the United States, conforming loan limits max out at $ for a single-family home
  • That means jumbo loans are typically any amount above $

However, those loan limits are more generous in some high-priced real estate markets. In the most expensive parts of the country, you could get a single-family conforming loan up to $[current_loan_limits max=TRUE].

Jumbo loan limits vary by lender. But they typically go into the millions. So if you need to borrow more than local loan limits allow, you will likely need a jumbo mortgage.

A note on ‘conventional’ and ‘conforming’ loans

Technically, a conventional loan is any mortgage not backed by the federal government. So anything that’s not an FHA loan, VA loan, or USDA loan is considered a conventional loan.

Most conventional loans can also be called “conforming loans,” because they conform to Fannie Mae and Freddie Mac’s lending requirements (including the loan limits mentioned above).

The two terms — ‘conventional’ and ‘conforming’ — are often used interchangeably. And in this article, we use ‘conventional’ to mean conforming loans that meet Fannie and Freddie’s standards.

Jumbo vs. conventional loan comparison chart

The size of the loan isn’t the only difference between a conventional and jumbo mortgage.

Because jumbo loans are so much bigger, mortgage lenders have tougher underwriting standards for this type of loan. They want to be extra sure homeowners can afford the monthly payments.

What does that mean for jumbo vs. conventional loan requirements? Here’s a quick overview:

Conventional (Conforming) LoanJumbo Loan

Maximum Loan Amount

$-$[current_loan_limits max=TRUE], depending on local home pricesUp to several million. Varies by lender
Minimum Down Payment 3% Usually 10-20%
Private Mortgage Insurance (PMI) Required?Yes if down payment below 20%Typically yes if down payment below 20%
Minimum Credit Score 620Often 680-740
Maximum (DTI)Typically 43%Typically 45%
Cash Reserves Needed0-6 months' homeownership expenses in savingsUp to 12 months’ homeownership expenses in savings
Eligible Property Types 1-4 unit properties, including primary residences, vacation homes, and investment propertiesWide range. Restrictions set by individual lenders

It’s important to note that because jumbo mortgages are non-conforming loans (also called ‘non-QM loans’), lenders get to set their own requirements.

Things like minimum credit score, maximum loan amount, and minimum down payment requirements can vary a lot from one lender to the next when you’re shopping for a jumbo loan.

So if you’re on the edge of qualifying, it’s worth shopping around for a lender that’s more flexible with its eligibility criteria.

Where do jumbo loans start?

In most places, a jumbo loan is one where you borrow more than $. Because that’s the standard loan limit on conventional mortgages for single-family homes.

But, if you are buying in one of the nation’s most expensive housing markets, jumbo loans start at $[current_loan_limits max=TRUE]. That includes big cities like L.A. and New York as well as all of Alaska and Hawaii.

Loan limits on conforming mortgages are imposed by the Federal Housing Finance Agency (FHFA). And it explains that its caps are “a function of local-area median home values.” So there’s a sliding scale for loan limits depending on the median home price in any given area.

You can use our lookup tool to find the loan limit in your own ZIP code. This will tell you the maximum conforming loan limit, which is the same as the minimum jumbo loan amount.

How much can I borrow with a jumbo loan?

Some lenders are more comfortable lending large sums than others. So, if you wish to borrow several million dollars, you may have to shop around more carefully than someone borrowing less than $1 million.

But multimillion-dollar jumbo loans are quite common in high-cost areas. So it shouldn’t be too hard to find what you need.

Many lenders, including Bank of America and Quicken Loans, routinely lend up to $2 million. And some go higher. But note that many lenders are shy about detailing their jumbo loan offerings online. So you’ll likely have to call and chat with a loan officer to learn what’s available.

If you want to know how much you can actually borrow with a jumbo loan, get pre-approved by a mortgage lender.

The pre-approval process looks at your income, assets, credit, and down payment to determine how much you can borrow. This is the only ‘real’ way to know how much house you can afford.

Are jumbo mortgage rates higher?

Traditionally, jumbo loans have slightly higher interest rates than those on conventional mortgage loans. But that’s not always the case.

Indeed, on the day this was written (in mid-August, 2021), Bankrate’s survey showed average jumbo rates actually lower than conventional ones. And we quickly found a big-name lender offering the exact same rate for both loans.

As with all mortgage products, lenders assess your riskiness as a borrower when deciding the rate they’ll offer you. And some are more forgiving than others.

So you should shop around between lenders to find your lowest mortgage rate and best deal, regardless of the type of loan you want.

How hard is it to qualify for a jumbo loan?

Conforming mortgage requirements are quite loose. It’s often possible to qualify with just 3% down and a FICO score of 620 or higher.

By contrast, lenders have more stringent requirements for someone wanting a jumbo loan. That’s because they’re putting a lot of money on the line. And they can’t share that risk with Fannie Mae or Freddie Mac.

You can take some of the pressure off by making a big down payment. If you put down more than 20%, lenders might be more forgiving about things like your credit score or debt-to-income ratio (DTI).

But, if that’s not possible, expect to need excellent credit, not too much existing debt, and decent cash reserves. (Cash reserves are liquid funds left over after you’ve made the down payment and closing costs, which could be tapped to cover mortgage payments in an emergency.)

Obviously, the more you’re borrowing and the lower your down payment, the tighter your lenders’ qualifying criteria are likely to get. You can read more about jumbo loan requirements here.

Is a jumbo loan a bad idea?

A jumbo loan is not a bad idea if you can comfortably afford the monthly mortgage payments. As with any home loan, that depends on your income and your current debt load.

You can use a mortgage calculator to estimate your future monthly payment and find to whether a jumbo loan might make sense for you.

Of course, nobody likes being in debt. And if you have alternatives — a bigger down payment, perhaps, or a smaller home — you’ll want to consider those.

But most people see mortgages as “good” debt. And a bigger loan can even offer benefits down the line, like more home equity and a bigger profit when you sell. So weigh the risks and rewards of your loan options, as you would for any major financial decision.

How can I avoid a jumbo loan?

If you want a high-priced home but you’d rather avoid a jumbo loan, there are two options that could help you:

  1. Make a down payment big enough to reduce your mortgage amount below local loan limits
  2. Consider a ‘piggyback loan,’ meaning you take out a second mortgage to supplement your down payment and reduce the size of your first mortgage

A piggyback loan lets you take out a second mortgage at the same time as your first. The second mortgage is typically a home equity line of credit (HELOC), and it acts as a down payment to help reduce the amount you’re borrowing on the primary mortgage.

Of course, a piggyback loan means you’d have two monthly mortgage payments. And you’re paying interest on the HELOC as well as the first mortgage. So if you’re considering this strategy, you should run the numbers on a piggyback loan and a jumbo loan to see which one is really cheaper in the long run.

Jumbo vs conventional loans: The bottom line

The bottom line is that there’s usually no contest between jumbo vs. conventional loans. If you’re borrowing within local loan limits, you can get a conventional/conforming loan. And if your loan amount exceeds that limit, you’ll get a jumbo loan.

Yes, jumbo loan rates can sometimes be higher than conventional loan rates. But that’s not always the case.

As with any mortgage, you can find the best deal by shopping around between lenders. And with today’s mortgage rates at historic lows, there are good deals to be had for conventional and jumbo loan borrowers alike.

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