There are currently over 1.3 million homes available across America, and there are five major types of mortgages, each with dozens of mortgage subtypes. With so many home-buying options, you might ask, “How do I find the right mortgage for me?”
Let’s start with two of the most basic mortgages: jumbo loans and conventional loans. Each has distinct features, eligibility requirements, and advantages worth exploring.
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What is a jumbo loan?
A jumbo loan got its distinctive name because it exceeds the Federal Housing Finance Agency (FHFA) conforming loan limits.
- For 2024, that conforming loan limit is $766,550 for most areas but can be up to $1,149,825 in certain high-cost locations
- FHFA 2025 loan limits: $806,500 for one-unit properties (a 5.2% increase from this year) with a ceiling of $1,209,750 for high-cost locations.
In short, A borrower will require a jumbo loan if the home loan they need exceeds this conforming loan limit. These loans are often used to purchase luxury homes or properties in higher-cost real estate markets.
What is a conventional loan?
A conventional loan is the opposite of a jumbo loan—a mortgage that falls below the conforming loan limits set by the FHFA.
These loans are not backed by government programs like FHA or VA loans, making them popular among buyers with strong credit and moderate loan needs.
Conventional loans often have flexible down payment options as low as 3-5%, plus fixed or adjustable-rate formats.
Jumbo loan vs. conventional loan rates
Interest rates are a key factor in any mortgage. Jumbo loans will likely have slightly higher rates than conventional loans—the bigger the loan amount, the bigger the risk to the lender.
For example: As of early December 2023, the average 30-year fixed APR for jumbo loans was 7.54%, while the average 15-year fixed APR was 6.85%.
Conventional loans are backed by government-sponsored enterprises (Fannie Mae and Freddie Mac), so the average 30-year fixed rate is often lower.
While the rate difference between the two loan types can fluctuate with market trends, jumbo loans often cost borrowers more monthly payments.
Summary of differences between jumbo and conventional loans
Loan limits
- Conventional loans: In 2025, the conforming loan limit for most areas will be $806,500, increasing to $1,209,750 in high-cost areas.
- Jumbo loans: Any loan amount exceeding the conforming loan limits qualifies as a jumbo loan.
Down payment requirements
- Conventional loans: Down payments can start as low as 3-5% for qualified borrowers.
- Jumbo loans: Borrowers typically need to provide a larger down payment of 10-20%, depending on the lender and loan amount.
Credit score requirements
- Conventional loans: The lowest credit score might be 620.
- Jumbo loans: Stricter credit requirements, with a minimum score of around 700 or higher.
Debt-to-income (DTI) ratio
- Conventional loans: Borrowers can often qualify with a DTI of 43-45%.
- Jumbo loans: Stricter limits, with a DTI requirement of 36-43%.
Cash reserves
- Conventional loans: Reserve requirements may range from 0 to 6 months of homeownership expenses.
- Jumbo loans: Lenders often require reserves for up to 12 months of expenses, particularly for higher loan amounts.
Jumbo loan requirements summarized
Because no government entities back a jumbo loan, lenders will impose stricter qualification standards to offset their risk.
General requirements include:
- High credit score: A minimum score of 700 is typically needed, though some lenders may set the bar even higher.
- Larger down payment: Borrowers must be prepared to make a down payment of 10-20%, with some lenders requiring more for very high loan amounts.
- Low debt-to-income ratio: Most lenders prefer a DTI of 36-43% to ensure borrowers can manage the larger monthly payments.
- Strong financial documentation: Lenders may require extensive proof of income, including tax returns, W-2s, and bank statements.
- Cash reserves: Borrowers often need to show sufficient savings to cover up to 12 months of homeownership costs.
How do I find the right mortgage for me?
If the decision is between a jumbo loan and a conventional loan, it’ll largely depend on the home price, financial profile, and homeownership goals.
Choose a conventional loan if:
- You are purchasing a home within the conforming loan limits for your area
- You have a moderate credit score (620 or higher) and limited savings for a down payment
- You want to minimize your cash reserves and DTI requirements
Choose a jumbo loan if:
- You are buying a high-value property that exceeds the conforming loan limits
- You have strong credit, stable income, and significant savings for a down payment and reserves
- You are comfortable with stricter qualification criteria in exchange for the ability to finance a larger home purchase
Checklist to find the right mortgage
Here’s a quick checklist to help you make better-informed decisions that align with your financial needs.
- Assess your budget: How much can you afford monthly payments, including taxes, insurance, and potential reserves?
- Check your credit score: Knowing your credit score helps identify whether you qualify for conventional or jumbo loan programs.
- Compare lenders: Shop around for lenders offering competitive rates and terms for your desired loan type.
- Factor in long-term goals: Consider how long you plan to stay in the home and whether you need flexibility in loan terms.
Conventional loan vs jumbo loan: The wrap-up
Understanding the unique features and requirements of each jumbo loan vs. conventional loan is key to choosing the right one.
Conventional loans are ideal for buyers staying within conforming loan limits and seeking lower down payments.
On the other hand, jumbo loans offer financing for high-value homes but come with stricter qualification criteria and higher rates.
If you’re asking yourself, “How can I find the right mortgage for me?” start by evaluating your financial situation and home-buying goals.
Regardless of what kind of mortgage you need, consulting with our trusted lenders can help you secure the right mortgage.
Get started with MyPerfectMortgage, and we’ll help you toward homeownership.
Our advise is based on experience in the mortgage industry and we are dedicated to helping you achieve your goal of owning a home. We may receive compensation from partner banks when you view mortgage rates listed on our website.
