Jumbo vs. Conforming Loan: What’s the Difference?

If you’re new to home buying, you’ll probably notice that there are a lot of mortgage loan types to choose from. From fixed rate and adjustable rate to FHA, jumbo, and conforming loans, the choices are endless—and probably more than a little confusing.

To help clear the air, we’re honing in on two of the most commonly confused ones today: jumbo loans and conforming loans.

What’s the difference and what do you need to know about each? Let’s take a look.

Conforming vs. Jumbo Loan Limits

The biggest difference between conforming loans and jumbo loans is their limit.

Conforming loans cap out at $726,200, meaning you can’t take out a mortgage any larger than that. This is an increase from $647,200 in 2022.

Jumbo loans, as their name indicates, go much higher. They’re designed for more expensive, luxury properties—not the average, middle-income-earning home buyer.

Jumbo vs. Conforming Rates

Interest rates are typically slightly higher on jumbo loans just because the balance is higher (and, subsequently, so is the risk for the lender).

Conforming loans are less risky for lenders (because they’re lower in cost and in such high demand), so the interest rate tends to be fairly low.

Ultimately, the interest rate for a borrower will vary based on a variety of factors, including the borrower’s credit score, debt-to-income ratio, and the size of the down payment.

Additionally, the interest rate on a jumbo loan can vary depending on the lender. It’s important for borrowers to shop around and compare rates from multiple lenders when considering a jumbo loan or a conforming loan. Borrowers should also consider the total cost of the loan, which includes not only the interest rate but also any fees associated with the loan.

Jumbo Loan vs. Conforming Loan Lending Standards

Because jumbo loans are so much higher in limit, they’re a little harder to come by, too.

You’ll need a solid credit history, a good FICO score, and a serious down payment in order to qualify for a jumbo loan. Fewer lenders offer jumbo loans, too, since they pose more of a financial risk. Depending on where you live, you may have trouble finding a reputable jumbo loan lender.

Conforming loans, on the other hand, use the underwriting guidelines set by Fannie Mae and Freddie Mac. This means they’re more accessible to the average borrower.

Virtually all mortgage lenders offer these types of loans, and the standards for getting one are a bit more lenient.

Alternative Mortgage Options

If you’re in need of a jumbo-sized loan but don’t want the rates that come with it, you can also consider piggybacking two smaller-sized conforming loans.

This can lower your rate and the amount of interest you’ll pay over time.

What’s the Right Mortgage for You?

In the end, the right mortgage product depends on your budget, your location, your credit, and your home-buying goals.

Do you need help determining which mortgage loan types are right for your budget and financial goals? Get in touch with Embrace Home Loans today. We can help.