Understanding the difference between a jumbo loan vs. conventional loan is especially important when navigating today’s fluctuating housing market. With home prices rising, more borrowers are looking at jumbo loans to finance their purchases. Knowing which loan type suits your financial profile and property can help you make a more informed decision.
What are Jumbo and Conventional Loans?
Conventional loans are typically used for properties that fall within conforming loan limits set by government-backed agencies, offering a more standard loan structure with lower interest rates.
They are often more accessible and have fewer qualification requirements than jumbo loans. Jumbo loans, on the other hand, are used for higher-value properties that exceed the conforming loan limits.
These loans often have stricter qualifications, including higher credit score requirements and larger down payments, but they allow borrowers to finance more expensive homes.
Jumbo vs. Conventional: Key Differences
Let’s explore the differences between conventional loans vs. jumbo loans:
Jumbo Loans vs. Conforming Conventional Loans
| Jumbo Loan | Conforming Conventional Loan | |
|---|---|---|
| Backed By | Private lenders | Government Sponsored Enterprises (GSE) |
| Loan Limit | Over $806,500 (varies by county) | Up to $806,500 (varies by area) |
| Interest Rate | Typically lower | Typically higher |
| Credit Score | 700+ often required | As low as 620 |
| Down Payment | Usually 10-20%+ | As low as 3% |
| Eligibility Requirements | Higher credit score, larger down payment | Moderate credit score, lower down payment |
| PMI Required | Often not required | Required with < 20% down |
| Risk | Higher due to no government backing and higher loan amounts | Lower risk due to government backing and lower loan amounts |
| Popular for | Luxury homes, high-value properties | Typical homes, first-time buyers |
How Much is a Jumbo Loan?
Jumbo loan amounts vary by location. While the standard conventional loan limit is usually $806,500 in most areas, anything exceeding that limit is classified as a jumbo loan. These thresholds can vary by county, with higher limits in expensive housing markets like San Francisco, New York, and Los Angeles.
In high-cost areas, jumbo loans can exceed $1 million. These regional variations make it important for buyers to check the specific limits in their area, as they directly influence their available loan types. Buyers in expensive markets often need a jumbo loan vs. conventional loan, as property values may exceed conventional loan limits, forcing them to seek a larger loan.
Jumbo vs. Conventional Loan Rates
One key difference between jumbo loans vs. conventional loans is the interest rate. While it may seem counterintuitive, on average, jumbo loans carry lower interest rates than conventional loans.
Average Interest Rate For Conventional vs. Jumbo Loans in 2024
| 2024 Average Conventional Conforming Rate | 2024 Average Conventional Jumbo Rate |
|---|---|
| 7.027% | 6.791% |
While it might seem surprising, jumbo loans on average carry slightly lower interest rates than conforming conventional loans. This is largely because jumbo loan borrowers tend to be highly qualified, often with excellent credit scores, low debt-to-income ratios, and sizable down payments. Since jumbo loans aren’t backed by Fannie Mae or Freddie Mac, lenders typically keep them on their own books and are motivated to offer competitive rates to attract financially strong clients, especially those who may also use the bank for wealth management or other services.
On the other hand, conforming conventional loans are subject to loan-level price adjustments (LLPAs), which can increase rates for borrowers with lower credit scores, smaller down payments, or other perceived risk factors. In contrast, jumbo loans usually don't have these pricing adjustments, giving lenders more flexibility in setting rates. Additionally, investor demand and competition in the jumbo loan market can further push rates down, especially when economic conditions make high-credit borrowers particularly appealing.
Jumbo vs. Conventional Loan Limits
The loan limits for jumbo loans vs. conventional loans are significant. The FHFA sets the conforming loan limits for conventional loans each year. As of 2025, the conforming loan limit is $806,500 for most areas, with higher limits in more expensive markets. Anything above this limit is considered a jumbo loan.
On the other hand, jumbo loans are not subject to these limits. They typically finance luxury homes or properties in high-cost areas. Because they exceed the conforming loan limits, private lenders offer jumbo loans rather than government-sponsored enterprises like Fannie Mae or Freddie Mac.
It’s important to know that while jumbo loans have higher limits, they also come with more stringent qualifications. Higher credit scores, larger down payments, and stricter debt-to-income ratio requirements are common for borrowers seeking jumbo loans.
Who is a Jumbo Loan Good For?
A jumbo loan is ideal for borrowers looking to purchase a high-priced home, especially in high-cost areas where real estate prices exceed conventional loan limits. If you have a significant down payment (typically 20% or more) and a high credit score, a jumbo loan may be the right option for you.
However, a jumbo loan isn’t for everyone. Since jumbo loans come with stricter eligibility requirements, they are often better suited for individuals with strong financial profiles who can manage larger debt amounts.
If you’re purchasing a home within conventional loan limits, a conventional loan will likely offer more favorable terms and lower interest rates.
Where To Find Jumbo Loans
If you're interested in securing a jumbo loan, you'll likely need to approach a lender specializing in larger loan amounts. While many traditional banks and mortgage lenders offer jumbo loans, shopping around to find the best rates and terms is essential.
When applying for a jumbo loan, make sure to compare different lenders’ offerings and check the loan limits in your area. Since jumbo loans can be more complicated to qualify for, working with an experienced mortgage broker can help streamline the process.
Whether you’re buying a luxury property or a more modest home, knowing your loan options will help you confidently navigate today’s real estate market!
