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Jumbo VS Conventional Loans

Updated: Mar 7




JUMBO VS CONVENTIONAL LOANS

WHICH ONE IS “BETTER”?



Jumbo VS Conventional Loans Introduction

Figuring out which specific loan you need can be difficult without any loan background. We’re here to help you!



Most conventional loans must fall within ‘conforming loan limits’. These limits usually require your loan amount to be under $625,000 in most regions of the U.S. However, if you are in need of a bigger loan, you will typically need to choose a jumbo loan.

Knowing this, it is important to be aware of the key differences when buying or refinancing with a jumbo loan, such as the need to have a higher credit score or a bigger down payment. Continue reading to learn more!


Key Difference Between a Jumbo & Conventional Loans

Most conventional loans are required to be within local loan limits. On the other hand, jumbo loans are for mortgage amounts above these conforming loan limits. In other words, jumbo loans pick up where conventional loans leave off.

Generally speaking, in 2021, conforming loan limits in the U.S. max out at $625,000 for a single family home, whereas jumbo loans are any amount above $625,000. These loan limits may be more generous in high-priced real estate markets. For example, in the most expensive regions of the U.S., you are able to obtain a single family conforming loan up to $822,375.

Jumbo loan limits typically vary by the lender, however, they usually range into the millions. Therefore, if you need to borrow more than the local loan limits allow, you will most likely need a jumbo loan. Below you can reference a chart comparing additional differences between a jumbo and conventional loan besides the size of the loan!



It is important to note that lenders are allowed to set their own requirements for jumbo loans due to the fact that they are ‘non-conforming’ loans.

Different aspects such as minimum credit score, maximum loan amount, and minimum down payment requirements can change from lender to lender.

Knowing this, if you are nearing the edge of qualifying with one lender, it is worth shopping around for a different lender who is more flexible with the specific eligibility criteria!


Are Jumbo Mortgage Rates Higher?

Traditionally, jumbo loans do have a slightly higher interest rate compared to those of conventional mortgage loans. However, this is not always the case!

As a mortgage broker, we have access to many different lending institutions, therefore, our ability to search a large pool of products and rates can give you an advantage when trying to find the most competitive program and price.

Lenders will always assess your risk level as a borrower when deciding which rate to offer you. Some lenders are more forgiving than others. As a mortgage broker, we have access to multiple lending companies and can review the pricing for each to determine what company and what rate is the most competitive.


How Hard is it to Quality for a Jumbo Loan?

Conforming mortgage requirements are traditionally flexible. In most cases, it is possible to qualify with only 3% down and a FICO score of 620+. In contrast, lenders tend to have more strict requirements with applicants wanting a jumbo loan. This is due to the fact that a larger amount of money is on the line.

Since there is more pressure with a jumbo loan, you as an applicant can decrease some of this pressure by making a larger down payment. If you are able to put more than 20% down, lenders may be more flexible with other aspects such as credit score.

If this isn't possible for your individual situation, you may expect the requirement of excellent credit, low existing debt, and a decent amount of cash reserves. Overall, the more you are borrowing from the lender and the lower your down payment, the more likely it is for the lender to be tighter on the qualifying criteria.


The Bottom Line

In conclusion, there really is no “better” loan when comparing a conventional and jumbo loan. The loan that is right for you is contingent on your individual circumstances, especially how much money you are in need of borrowing from your lender. If you are borrowing within the local loan limits, you may qualify for a conventional loan. Whereas if your loan amount exceeds these limits, you will need to get a jumbo loan.

Jumbo loan rates can sometimes fall higher than conventional rates, however, this is not always the case.

As with any loan or mortgage, you will always find the best deal by shopping around between lenders, since not all lenders are as flexible as others! Click here to read more about the Loan Process!


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Citations:

Warden, P. (2021, September 13). Jumbo vs. conventional loan: Which is best?: Pros & Cons. Mortgage Rates, Mortgage News and Strategy : The Mortgage Reports. Retrieved October 17, 2021, from https://themortgagereports.com/80407/jumbo-vs-conventional-loans-which-is-better.


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