You’re planning to buy a new house! Whether this is going to be your first time, or a new investment, there is so much to look forward to. One thing you’re probably not looking forward to, though, is the mortgage. Taking out such substantial loans is stressful! There’s so much to know about and consider to make sure you’re making the best financial decision for that new dream house. We can’t cover everything here, but we can cover two basic types of loans: jumbo vs conventional loans. Join us, as we discuss these two terms, and help you deduce which type of loan may be right for you. 

 

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Defining Terminology: Jumbo vs Conventional Loans

Jumbo Loans 

Jumbo loans, or jumbo mortgages, are large loans that don’t conform to loan limits set by the Federal Housing Finance Agency (FHFA). 

Every year, the FHFA sets new loan limits, and mortgages within these limits are called conforming loans. Conforming loans are eligible for purchase by Fannie Mae and Freddie Mac, two government-sponsored businesses, which free up lenders’ funds. However, loans that exceed that limit are non-conforming loans, and are not guaranteed or insured, making them riskier for the lender. 

Jumbo loans help pay for houses that cost more than the set FHFA loan limit. Buyers are typically looking to purchase some sort of luxury home and are high income earners. 

 

Conventional Loans 

Conventional loans, or conventional mortgages, are a popular type of loan that are not directly insured by the government.  

However, most conventional loans fall within FHFA loan limits, meaning they are conforming loans, which allows them to be bought by Fannie Mae and Freddie Mac, as mentioned before. 

Buyers typically are low-to-moderate income earners and are in the market for what may be considered more standard housing, as their mortgage does not exceed FHFA loan limits.  

 

An aerial shot of a suburban neighborhood.

Whether you are considering a conventional home or a luxury home may contribute to your decision to seek a jumbo or conventional loan.

 

Key Comparisons Between Jumbo vs Conventional Loans 

Now, with a basic understanding of jumbo vs conventional loans, let’s analyze the substantial differences between them. 

 

Qualifications

There is no doubt that your personal financial situation will be a major factor in the type of loan you take out. Look at the typical financial qualifications to guide your decision. But keep in mind, many factors may affect your qualifications when filing for a loan. This includes your income, if this is your first time buying a home, and the size of the desired home, among other things. The following table presents a solid range of qualifications you may see. 

 

Requirements  Jumbo Loan  Conventional Loans 
Maximum Loan Amount  Multiple Million Dollars  $766,550 to $1,149,825 (depending on location) 
Credit Score  680+  620 
Down Payment  20%+  3% – 20% 
Reserves Required  Up to 12 Months  Up to 6 Months 
Maximum Debt-To-Income Ratio (DTI)  45%  50% 
LTV Ratio  Less or equal to 89.99%  Less or equal to 97% 

 

Pros & Cons

Now, let’s identify some of the benefits and drawbacks of jumbo vs conventional loans. 

 

Jumbo Loans

Pros  Cons 
There are larger loan amounts available.  May bring higher monthly mortgage payments. 
There are more competitive interest rates.  Can be difficult to obtain. Lenders are strict about their qualifications and requirements. 
May enable bigger and better purchases.  Requires a much larger down payment. 

 

Conventional Loans

Pros  Cons 
Lower down payment. Particularly accessible to first time homeowners.  Requires private mortgage insurance to have a down payment of less than 20%. 
Lower credit score requirements.  Higher interest rates in the case of low credit scores. 
Lower monthly mortgage payments.  Strict debt-to-income requirements. 

 

Typical Uses 

Jumbo vs conventional loans make more sense in specific contexts. What are you trying to buy? What are your finances like? How’s your credit? Let’s understand these contexts. 

Jumbo loans are often used for high-cost housing. This could be a luxury home, a vacation home, or just a home in a high-cost area. People who take out jumbo loans typically are high income themselves and have strong credit. 

Conventional loans are typically conforming loans and are used for mortgages within the FHFA loan limit. It is the much more common loan type. Buyers are typically low-to-moderate income and have a decent credit rating. 

 

Make Mortgage Decisions with Metropolitan Title 

We are so excited for you to buy your new house! Although we know money is one of the last things you want to think about, we applaud you for taking the time to learn more about how you can finance your home. For further help and guidance, Metropolitan Title is Indiana’s title company! With our dedicated team, and over 150 years of experience, we will guide you through a successful transaction. Contact us to learn more! 

 

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