Jumbo Vs. Conventional Loans: Are They The Same?

If you have a solid credit score, low debt and enough money saved to make a sizable down payment, you may have already decided that financing with a conventional loan – instead of an FHA loan, VA loan or other mortgage – makes the most sense for you.

However, what if the home in your desired neighborhood is considerably more expensive than other properties? . If you’re looking at a home in an expensive market, you may need to consider applying for a jumbo loan. 

In order to make an informed decision, you’ll need to understand the differences between a jumbo and conventional loan. Let’s explore these two types of home loans to help you determine the best pathway forward for your home-buying needs.

Is A Jumbo Loan A Conventional Loan?

Yes, jumbo loans are a type of conventional loan. Unlike Federal Housing Administration (FHA) loans, Department of Agriculture (USDA) loans and Department of Veterans Affairs (VA) loans, conventional loans are mortgages that aren’t backed by a government agency. Instead, private lenders issue and underwrite conventional loans for potential home buyers.

Jumbo Vs. Conforming Loans

Most conventional mortgage loans are conforming loans. Conventional loans that qualify as conforming mortgages can be bought by the Federal National Mortgage Association (Fannie Mae) or Federal Home Loan Mortgage Corporation (Freddie Mac). Then, these government-sponsored entities either hold the loan or package it with other conforming loans to be sold as mortgage-backed securities to real estate investors on the secondary mortgage market.

Unlike other conventional loans, jumbo loans – which are used to finance properties often valued at over a million dollars – are non-conforming because they exceed the conforming loan limits of Fannie Mae and Freddie Mac.

While a jumbo loan is a type of conventional loan, for the rest of this article, conventional loans will refer specifically to conventional conforming loans that satisfy Fannie Mae and Freddie Mac standards.

Jumbo Loan Vs. Conventional Loan: Requirements

Like all mortgages, both conventional loans and jumbo loans have eligibility requirements – such as maximum debt-to-income (DTI) ratios, credit score minimums and down payment standards – that borrowers must meet to qualify for financing.

However, because of their steep loan amounts, jumbo mortgages often carry stricter lending requirements than conventional conforming loans.

Let’s take a look at how the lending requirements differ between conventional loans and jumbo loans.

Loan Limit

The Federal Housing Finance Agency (FHFA) sets an annual limit on how large of a mortgage loan is eligible for purchase by Fannie Mae or Freddie Mac. These limits are set at the county level and are determined by the local real estate market and housing prices.

In most places in the United States, the conforming loan limit for a one-unit property in 2024 is $766,550 – up from $726,200 in 2023. In high-cost areas – such as New York City and San Francisco and in states like Hawaii and Alaska – the conforming loan limit can go up to $1,149,825. These limits can increase even more if you’re financing a two- to four-unit property.

Jumbo loans are used to finance any homes – such as luxury homes or homes listed in highly competitive housing markets – that exceed the conforming loan limit for their respective counties. Lenders always have a maximum loan amount. At Rocket Mortgage, it's $3 million for jumbo loans.

Minimum Down Payment

To qualify for a conventional or jumbo loan, you’ll have to put some money down upfront. Your minimum down payment will depend largely on your credit score, the loan type and your mortgage lender’s requirements.

• Conventional loan: The minimum down payment on a conventional loan is 3% of the home purchase price. However, you’ll need to put 15% down if you’re purchasing a two-unit home or investment property, and at least 10% down for a second home or vacation home. And if you want to avoid private mortgage insurance (PMI), you’ll need to make a down payment of at least 20%.
• Jumbo loan: You’ll likely be required to put 10% – 25% down on a jumbo loan for a single-family home or one-unit property, although your lender may require you to put down more, especially if you’re financing a second home, multi-unit property, investment property or vacation home.

Private Mortgage Insurance (PMI)

Private mortgage insurance (PMI) protects lenders in the event a home buyer defaults on their loan. Because homeowners who have less than 20% equity in their home are considered riskier borrowers, PMI is a requirement of homeowners who finance with a conventional loan and make a down payment of less than 20% of their home’s purchase price.

PMI can be required for jumbo loans as well. However, because of the higher down payment requirement, some lenders won’t require PMI or will absorb the expense into a higher mortgage rate.

Some jumbo mortgage products forgo PMI altogether. Our friends at Rocket Mortgage^® offer a Jumbo Smart loan, which allows you to finance a one-unit property with a 30-year fixed-rate mortgage for up to $3 million and as little as 10.01% down (for a two-unit property, you’ll need to make a minimum down payment of 15%).

Credit Score

Your credit score is a three-digit number that indicated how well you’ve managed debt over the course of your credit history. The credit score is usually the median score reported by the credit bureaus Experian™, Equifax® and TransUnion^®.

Minimum credit score requirements vary by mortgage lender and whether you’re applying for a conventional or jumbo loan.

• Conventional loan: In general, you’ll need a 620 minimum credit score to qualify for a conventional mortgage loan, although some lenders may require a higher score. A higher credit score could net you a lower mortgage interest rate and lower monthly payments.
• Jumbo loan: Some lenders will go as low as 680, but because jumbo loans are riskier than conventional conforming loans, most lenders require a minimum credit score of at least 700 to qualify. Some lenders even go as high as 740.

Debt-To-Income Ratio (DTI)

Your back-end debt-to-income (DTI) ratio helps lenders determine how much of a mortgage you qualify for based on how much of your gross monthly income goes toward making the minimum monthly payment on recurring debt. A lower DTI can mean you’re less likely to default on your mortgage.

DTI requirements for conventional mortgages and jumbo loans are similar:

• Conventional loan: Most lenders require a DTI of 50% or less but prefer a DTI in the 43% – 45% range. A DTI of 36% or lower will earn you a lower interest rate.
• Jumbo loan: To qualify for a jumbo mortgage, you’ll usually need a back-end DTI of 43% – 45%, although some lenders prefer a DTI as low as 36%.

Loan-To-Value (LTV) Ratio

Loan-to-value ratio, or LTV, is a percentage that comes from dividing your loan amount by your property’s appraised value. A higher LTV indicates that you haven’t accumulated much home equity through your down payment, and lenders perceive this as higher risk for loan default. 

Lenders typically want an LTV ratio of 97% or less for conventional loans and – because the loan amount is usually much higher – 89.99% or less for jumbo mortgages.

Cash Reserves

During the underwriting process, lenders may confirm that you have sufficient funds in the bank to cover your mortgage payments and other homeownership expenses. Typically, lenders require you to have up to 6 months of cash reserves to qualify for a conventional loan and up to 18 months for a jumbo loan.

Mortgage Rates

Because jumbo mortgages carry higher loan amounts and therefore more risk to a lender, you might assume that jumbo loans generally have higher interest rates than conventional loans. However, jumbo loans are pretty competitive with market rates, and lenders like to keep jumbo mortgage rates close to – if not below – conventional rates when possible. 

Ultimately, your credit score, down payment, DTI ratio and other underwriting factors will determine your conventional or jumbo loan rate.

Property Requirements

Conventional conforming loans have more flexible property requirements than most other types of mortgages. In addition to a one- to four-unit primary residence, you can use a conventional mortgage to finance your second home, investment property or vacation home.

Jumbo loans also provide a wider range of eligible property types than other non-conforming loans – especially government-backed mortgages – but these allowances vary by lender. Because multi-family properties enjoy higher conforming loan limits, you may not even need a jumbo loan to finance a multi-unit property as long as the property has no more than four units.

Closing Costs

You’ll be required to pay closing costs on either your conventional loan or jumbo mortgage. Typically, closing costs are 3% – 6% of the loan amount on a conventional mortgage. 

A lender might charge more toward closing costs for a jumbo loan, given the different – and often stricter – requirements. However, even if the percentages are comparable on closing costs, you’ll generally pay more at closing for a jumbo loan than a conventional loan, because the jumbo loan is for a lot more money.

The Bottom Line

If you have excellent or even good credit, low debt and a down payment saved up, a conventional loan might be all you need to finance your new home.

However, if your dream home exceeds FHFA conforming limits in your area, you’ll need to finance with a jumbo loan – which means having to meet the stricter jumbo loan requirements.

If you’re trying to decide whether a conventional or jumbo mortgage – or another loan option – will work best for you, it helps to know what you qualify for. Start a mortgage application with Rocket Mortgage today to speak with a Home Loan Expert and get advice on how much house you can afford.