What is the Difference between a Jumbo Loan or a Conforming Loan?

One of the many questions that one might ask themselves during the process of researching a is; what, if any, differences are there between a and a ? How would one effect me differently than the other?  Does it really matter as to which one choose?


What is a Conforming Loan?

A conforming loan actually has to fit into a certain set of guidelines to be properly defined as “conformed” a couple of these guidelines include:

  • the loan conforms to the GSE ( government sponsored enterprise ) specifically in the jurisdiction of Freddie Mac and Fannie Mae
  • the size of the loan is also limited as well; for instance for single family homes it was mostly limited to a sum of $417,000 with a few exceptions
  • the debt-to-income ratio (DTI)
  • the individuals credit score upon application
  • documentation requirements

Conforming can seem more attractive to borrowers because of the security and normally lower interest rates on the borrowed money in question.

What is a Jumbo Loan?

A jumbo loan is only one type of loan which counts as a non-conforming loan as it does not conform to the guidelines of limitation on the amount of money borrowed. Which can be more beneficial as this increased amount can result in lower interest rates. With no set guidelines lenders are free to set their own contracts on a case by case basis.

The Differences between a Jumbo Loan and a Conforming Loan

Rates between the two are going to vary from individual to individual as no matter the type of rate a borrower searches out; their credit history and other factors will come into play no matter the lender. While it is true that a conforming loan as some measure of government backing it is still a risk for these GSE. As a Jumbo loan is seen as riskier due to the amount of money being borrowed it is likely fewer banks and lenders will be vying for your patronage. Other expectation coupled with a Jumbo loan may be an increased down payment size, or a higher interest rate.

A good side by side would be this:

  • For a Conforming Loan you will need a minimum credit score of 620, where as a Jumbo Loan is 700 at the minimum.
  • A Conforming Loan may want to see assets saved up in reserve, in most situations this adds up to about two to three months payments. A Jumbo Loan sometimes will want to see as many as twelve months reserved as being more risky for the lender will increase the requirements.

Qualifying for a jumbo loan can be seen as tedious because of this difference between the government supported conforming loan and the risky jumbo loan, but it is nothing to get discouraged about. Some numbers report as many as 80 percent of closed by the banks in recent years to be jumbo mortgages. Just consider that the better your credit, income, and assets may make you a more attractive borrower to these lenders.