Jumbo Loan vs Conventional: Which is Better In 2024?

Before you look at houses, you need to know how much you can afford. It doesn’t make much sense to shop for a home if you don’t know how much money a bank will let you borrow.

But the thing is, no mortgage is one-size-fits-all. Each has different requirements and parameters, and you may be considering jumbo loans vs conventional loans. Knowing the difference and which is best for you can improve your home-buying journey.

What Is a Jumbo vs Conventional Loan?

Jumbo loans are pretty much what they sound like super-sized loans that let you purchase properties with steep price tags.

Conventional loans are more common because they tend to fit the needs of the average homebuyer.

When you consider that not many of us are buying homes that run into the millions of dollars.

It's important to remember that refinancing works similarly with both loan products. 

Jumbo Loan Basics

A jumbo loan is a mortgage for more than the maximum conforming loan amount. This means that the Federal Housing Finance Agency (FHFA) sets a maximum amount for conforming loans. The limit can change annually but currently falls at $766,550 in most counties throughout the U.S.

What Else is Different About Jumbo Loans?

Pay close attention to jumbo loan requirements. Lenders take a bigger risk lending you a considerable loan amount with a jumbo loan.

For instance, what is the down payment required on a home for a conventional loan vs a jumbo loan?

You’ll likely need a larger down payment with a jumbo loan. It can also require stricter credit guidelines.

Conventional Loan Basics

Conventional loans are a great choice for the average homebuyer. Because they’re not government-backed loans, you can’t get a VA or FHA home loan. Instead, a conventional home loan is its own type of mortgage program.

Most private lenders offer conventional mortgages, such as banks, credit unions, mortgage companies, and other financial institutions.

There are two main types of conventional loans: conforming and non-conforming. Conforming loans ‘conform’ to the federal guidelines, meaning they fall under the maximum loan amount set by the FHFA.

Jumbo Loan vs Conventional Requirements

Jumbo loans generally are harder to qualify for. Because the loan is much larger than a conventional loan, lenders need to be extra sure you’re the right candidate.

When looking at jumbo loan vs conventional loan requirements, you’ll notice a few differences:

Credit Scores

Conventional loans can require a good credit score, but jumbo loans often require nothing less than excellent credit.

Down Payment

Both loan types require a down payment, though jumbo loans can require larger down payments than conventional loans.

Income

Because your loan amount and monthly payment are likely higher with a jumbo loan, you’ll likely need a higher income to qualify than if you applied for a conventional mortgage.

Debt-to-income (DTI) Ratio

The FHFA suggests your DTI ratio falls below 43%. However, you may need a lower DTI to qualify for a jumbo loan.

Closing Costs

Closing costs can also have different requirements. That’s because there’s much more to assess with a jumbo mortgage!

Even if you can afford a larger monthly payment, a jumbo loan might not be right for you if you don’t have the cash to cover a sizable down payment and closing costs expenses. 

Jumbo Loan vs Conventional Loan Rates

Do jumbo loans have higher rates? You might think a higher loan amount means a higher interest rate. But that’s not always the case. Just like conventional loan rates, jumbo loan rates are based on your qualifying factors.

Borrowers can qualify for attractive jumbo loan rates comparable to conventional rates.

The key to a great interest rate is a large down payment, a low DTI ratio, and great credit.

When Should You Consider a Jumbo Loan?

Choosing the right loan is just as important as choosing the right house. You’ll carry your mortgage for the next 15 to 30 years! So, is a jumbo loan better than a conventional loan?

Not necessarily. A conventional can be a good fit unless you need a higher loan amount.

For example, if you’re buying a luxury home or a home in a high-cost area, your loan needs may exceed the conforming loan limit for a conventional loan. In that case, a jumbo loan may be your only option.

When Should You Consider A Conventional Loan?

Consider a conventional loan if you’re buying an ‘average’ home and don’t need to borrow more than $766,550. It can also be a good option if you don’t have a strong credit rating.

Because even if you put down less than 20% and pay private mortgage insurance (PMI), you can still come out ahead. This is because you don’t want to over-extend your finances.

If you have too much of your income going to your house payment, you might sacrifice saving for retirement, vacations, or other financial goals.

Pros And Cons Of A Jumbo Loan Vs Conventional

All loans, conforming or non-conforming, jumbo or conventional, have pros and cons. 

Jumbo Loan Pros

• You can borrow more money
• Competitive interest rates
• Flexible repayment term

Jumbo Loan Cons

• Often require adjustable rates
• A higher down payment required
• Strict credit and debt requirements

Conventional Loan Pros

• More flexible credit requirements
• Lower down payment amount
• Variety of lenders to choose from
• Choose from adjustable or fixed rates

Conventional Loan Cons

• Cap on how much you can borrow
• May require private mortgage insurance
• Can’t use a government-backed program like FHA or VA

So, Is A Jumbo Loan Better Than Conventional?

The choice between a jumbo loan or vs conventional loan depends on your needs.

First, look at how much you need to borrow. Is it more than $766,550? If so, a jumbo loan might be the answer. If not, you have other options, including a conventional loan.

Keep in mind that a jumbo loan has more qualifying factors. Because you’re borrowing more than you could with a conventional loan, lenders give only the best borrowers jumbo loan approval. But for most Americans, a conventional loan is the right choice for homeownership.

Want to find the best home loan? Contact our loan experts today!