Updated: January 1, 2024
When it comes to home financing, the terminology can be confusing. The phrase “conventional loan vs jumbo loan” often leads to a maze of definitions and classifications. In reality, a jumbo loan is actually a special subcategory of a conventional loan.
However, over time, the term “conventional” has been predominantly associated with regular, non-jumbo loans. For the sake of clarity in this discussion, “conventional” will refer to non-jumbo loans below the conforming loan limit, whereas “jumbo” will mean loans above the conforming loan limit.
Grasping the distinctions between a conventional loan and a jumbo loan is vital when exploring your home financing choices, as it could be the deciding factor between securing a home loan or facing rejection.
Is a jumbo loan a conventional loan?
Indeed, a jumbo loan is a type of conventional loan. It’s a specific category nestled within the broader conventional loan family. This might seem counterintuitive at first, given the common association of the term “conventional” with non-jumbo loans. However, understanding the broader landscape of mortgage loans can help clarify this.
A “conventional loan” is simply a loan not backed by the federal government or tied to any specific government program, such as FHA or VA loans. Within the conventional loan category, there are two primary types: conforming and non-conforming. Loans below the conforming limit ($766,550 for single-family residences and condominium units in most areas) are conforming loans, while those above are non-conforming loans.
Hence, a jumbo loan is a non-conforming conventional loan. (By contrast, a loan that is within the conforming limit is a conforming conventional loan.)
However, in everyday parlance, “conventional” has been associated with non-jumbo loans, primarily because most conventional loans are conforming.
Even though jumbo loans are technically conventional loans, in this article, we’ll use “conventional” to refer to loans that are less than the conforming limit to distinguish them from “jumbo” loans, which exceed the conforming limit.
What is the difference between a jumbo and a conventional mortgage?
The main difference between a conventional and a jumbo loan is the loan amount, rates, requirements, underwriting, and availability. Conventional loans typically fall below $766,550, while jumbo loans exceed this threshold. Jumbo loans generally carry higher rates due to the increased risk associated with larger loan amounts.
Since jumbo loans are nonconforming, lenders cannot sell them to Fannie Mae or Freddie Mac. The requirements and underwriting process for jumbo loans are therefore more rigorous, and jumbo loans are not as readily available as conventional loans.
These differences can significantly impact a borrower’s experience. For instance, if you don’t meet the stringent requirements for a jumbo loan but still attempt to secure one, you may find yourself facing rejection after rejection. This wastes valuable time, not to mention frustrating.
Therefore, it’s crucial to realistically assess your financial situation and understand the requirements of the different loan types before starting the application process.
If your financial profile aligns more closely with the requirements of a conventional loan, it would be more beneficial to apply for a conventional loan right from the start. This approach saves time, preserves your credit score, and increases the likelihood of loan approval.
It’s not just about getting a loan; it’s about getting the right loan that fits your financial profile and homeownership goals.
Not sure if you need a conventional loan or a jumbo loan?
Conventional loan vs jumbo loan comparison chart
Let’s delve deeper into the differences between these two loan types with a comparison chart. The following table offers a clear comparison between conventional and jumbo mortgages across five critical parameters:
- Loan amount (broken down by property type and whether the property is located in a regular- or high-home-price area)
- Rates
- Requirements
- Type of underwriting
- Availability
| Conventional | Jumbo | |
| Loan Amount (SFR, condo) | $766,550 and lower $1,149,825 and lower (high-home-price areas) | $766,551 and up $1,149,826 and up (high-home-price areas) |
| Loan Amount (2-unit) | $981,500 and lower $1,472,250 and lower (high-home-price areas) | $981,501 and up $1,472,251 and up (high-home-price areas) |
| Loan Amount (3-unit) | $1,186,350 and lower $1,779,525 and lower (high-home-price areas) | $1,186,351 and up $1,779,526 and up (high-home-price areas) |
| Loan Amount (4-unit) | $1,474,400 and lower $2,211,600 and lower (high-home-price areas) | $1,474,401 and up $2,211,601 and up (high-home-price areas) |
| Rates | Varies | Typically higher |
| Requirements | Good credit, low DTI, significant down payment | Excellent credit, very Low DTI, large down payment |
| Type of Underwriting | Automated | Manual and more stringent |
| Availability | Widely available | Less available due to risk |
Let’s dive into each of the 5 parameters in more detail.
Conventional vs jumbo loan amounts
Figuring out conventional vs jumbo loan amounts is as simple as referring to the conforming mortgage loan limits set by the Federal Housing Finance Agency (FHFA). In 2024, for most U.S. counties, the FHFA set the conforming loan limit at $766,550 for single-family residences and condo units. Therefore, a jumbo loan amount is anything that exceeds the conforming limit by $1.
However, it’s important to note that although conventional loans typically cap at $766,550, the FHFA sets higher limits in high-cost areas.
This variation in loan limits based on geographical location adds another layer of complexity to the conventional vs jumbo loan comparison.
For instance, in 2024, the loan limit for a single-family residence or condo can reach up to $1,149,825 in the entire states of Alaska and Hawaii, and certain counties in California, Utah, Wyoming, Idaho, Maryland, Virginia, New York, New Jersey, Pennsylvania, and Massachusetts. This means that in these high-cost areas, a loan of $1,149,825 or less is still considered conventional, and it only becomes a jumbo loan when it exceeds $1,149,825.
Other states have their own variations. For example, the jumbo loan limit in Florida is $766,550 for all counties, except Monroe County, where the limit is $929,200.
Jumbo loan vs conventional rates: are jumbo loan rates higher than conventional?
When comparing jumbo loan vs conventional rates, it’s crucial to understand that while rates are influenced by various individual factors, jumbo mortgage rates are typically higher than conventional rates.
This is primarily due to the increased risk lenders undertake due to the larger loan amount associated with jumbo loans. While the exact rates can vary based on a variety of factors, including credit score and down payment, the trend of jumbo loan rates vs conventional remains consistent. This trend is important to consider when evaluating the total cost of a jumbo loan over its lifetime.
Requirements for jumbo loans vs conventional loans
The criteria for jumbo loans vs conventional loans differ quite a bit. Understanding these requirements can help potential borrowers evaluate their eligibility for each loan type and prepare accordingly.
Jumbo loan standards are more stringent. Applying for a jumbo loan requires a higher credit score, a lower debt-to-income ratio, and a larger down payment. Lenders may also require proof of substantial assets and reserves. However, jumbo loans aren’t necessarily out of reach for everyone. Although the loan requirements for jumbo loans are generally strict, there are creative jumbo lenders with more flexible guidelines. For example, some jumbo lenders offer relaxed guidelines for self-employed borrowers by not requiring any tax returns.
Conventional loans usually have less stringent requirements, making them more accessible to a broader range of borrowers. Even still, it may still be difficult to qualify for a conventional loan if your credit profile is weak in a particular aspect such as a low credit score. Fortunately, as with jumbo loans, there are creative conventional lenders that have more relaxed requirements such as a lower minimum credit score,
Underwriting type: jumbo vs conventional loan
The underwriting process for a jumbo vs conventional loan also varies.
Conventional loans often undergo an automated underwriting process, while jumbo loans require manual underwriting. To qualify for a jumbo loan, be prepared to be scrutinized under a more powerful magnifying glass. This more rigorous process is due to the higher loan amounts associated with jumbo loans, which present a greater risk to the lender. This difference in underwriting processes can impact the approval time and the level of scrutiny applied to the borrower’s financial situation.
Availability comparison: jumbo loans vs conventional
Conventional loans are generally more accessible than jumbo loans due to their lower risk and wider appeal to lenders. (However, if you’re seeking a non-QM conventional loan with more flexible guidelines, the search can become more challenging.)
On the other hand, jumbo loans, across the board, are less commonly offered by lenders. Jumbo loans are riskier for lenders due to the higher loan amount and the fact that Fannie Mae and Freddie Mac won’t purchase jumbo loans.
This scarcity becomes even more pronounced when you’re looking for super jumbo loans. The inherent risk associated with these large loans makes them less attractive to lenders, making them harder to find.
30-year jumbo vs 30-year fixed: an analysis
When comparing a 30-year jumbo vs 30-year fixed loan, several factors come into play. Both offer the stability of a fixed rate over a long term, but the jumbo loan typically comes with a higher interest rate due to the larger loan amount. However, the exact difference in rates can vary based on market conditions and the borrower’s creditworthiness. It’s also important to consider the long-term implications of these rates, as a slightly higher rate can result in significantly higher mortgage payments over a 30-year term.
How DAK Mortgage can help with the jumbo mortgage vs conventional decision
We understand that the decision between jumbo mortgage vs conventional is not a one-size-fits-all situation. Whether you’re looking to purchase a new home or refinance your current one, it’s a decision that should be tailored to your unique financial circumstances and homeownership goals.
Once we’ve identified the right type of loan for your situation, we don’t stop there. We further assist you by identifying the specific features you need in a loan. For instance, if you’re leaning towards a jumbo loan, you might need flexible guidelines that provide higher loan-to-value ratios (LTVs). For instance, we provide 10% down jumbo loans in Florida.
On the other hand, if a conventional loan seems more suitable, you might need a lender that offers flexible guidelines such as no tax returns required or a higher maximum debt-to-income ratio (DTI).
Our value lies not just in helping you make an informed decision, but also in connecting you with the right lender from the start. We understand that the loan application process can be time-consuming and stressful, and multiple applications can negatively impact your credit score. That’s why we strive to get it right the first time. By connecting you with the right financial institution for your specific needs, we aim to streamline the loan process, saving you time and effort, and increasing your chances of loan approval.
Conventional vs jumbo loan: key takeaways
Navigating the world of home financing can be complex, with terms like “conventional,” “jumbo,” “conforming,” and “nonconforming” often causing confusion.
Smaller, non-jumbo loan amounts have become known as “conventional” or “regular” loans.
The “regular vs jumbo mortgage” comparison is essential to understand as it can significantly impact your borrowing experience and financial situation.
Conventional or regular loans, which are typically less than $766,550 in most U.S. counties, are widely available and often come with less stringent requirements.
On the other hand, jumbo loans, which exceed the conforming loan limit, are less commonly available and come with stricter requirements.
Another key factor to consider is the jumbo rate vs conventional rate. While rates can vary based on individual circumstances, jumbo rates are typically higher due to the increased risk associated with larger loan amounts.
Whether you choose to get a jumbo loan or a conventional loan depends on your specific financial situation and homeownership goals. Working with a mortgage broker like DAK Mortgage can help you navigate these complexities and find the right loan for your needs.
