Differences Between Jumbo and Conforming Loans

If you’re thinking about purchasing an expensive home, it’s important to understand how jumbo and conforming loans differ, and the pros and cons of each. Choosing carefully could help you save a lot of money over the term of your mortgage.

Key Differences
A conforming loan can only be used to borrow up to $453,100. For mortgages over that amount, there are jumbo loans. Since a homebuyer who chooses a jumbo loan is borrowing more money than the typical buyer, and since fewer people choose that option, a jumbo loan is much riskier for the lender. Therefore, jumbo loans require larger down payments and better credit scores than conforming loans, and often carry higher interest rates.

How to Get a Jumbo Loan
If you want to take out a jumbo loan, you’ll need to conduct research to find a lender. Since these mortgages are so risky, some banks and credit unions don’t offer them at all. If you live in an area where real estate prices are generally well above the national average, it might be easier to find a local lender that offers jumbo loans.

Each lender sets its own guidelines that it uses to decide whether to approve or deny an application for a jumbo loan. If a lender denies your application because you don’t have enough money for a down payment—or because your credit score is too low—don’t despair. You might be able to find another lender with more flexible guidelines, although you could have to accept a higher interest rate.

What If You Don’t Qualify for a Jumbo Loan?
If you have your heart set on a particular house, but its cost is above the amount you can borrow for a conforming loan and your application for a jumbo mortgage has been denied, you might still be able to own your dream home. You could take out two mortgages—one up to the conforming loan limit and a separate one for the remainder of the amount you need to borrow.

Depending on the lender(s) and your financial situation, you might need to make two down payments for very different amounts and have two different interest rates. That option could help you realize your goal of owning an expensive home, and you might wind up paying less per month with two separate mortgages than you would have with one jumbo mortgage since conforming loans tend to have lower interest rates.

Explore All Mortgage Options
Buying an expensive house is more challenging than purchasing a modest property, but that doesn’t mean it’s impossible. A jumbo loan is one option, but if you can’t qualify—or if the interest rate is too high—applying for two conforming loans could turn your dream into a reality—and could even save you money in the long run. Talk to several local lenders, get specific rates and estimated payments, and figure out which option would be best for you.