Jumbo vs. conventional loan: Key differences

When you're ready to buy a home, understanding your mortgage options can make all the difference in securing the right financing. Two of the most common loan types are jumbo loans and conventional loans — each designed for different borrowing needs and home price ranges.

The main difference between a jumbo versus conventional loan comes down to loan limits set by the Federal Housing Finance Agency (FHFA). Conventional loans fall within these limits, while jumbo loans exceed them, requiring different qualification standards and rates. 

Let’s walk through everything you need to know to decide which option works best for your homebuying journey.

Quick overview: Jumbo vs. conventional loan

A conventional loan is a mortgage that meets the conforming loan limits established by the FHFA. For 2025, most areas' baseline conforming loan limit is $806,500, though high-cost areas can have limits up to $1,209,750. Government-sponsored enterprises like Fannie Mae and Freddie Mac can purchase these loans, which helps keep rates competitive and qualification requirements flexible.

Jumbo loans are mortgages that exceed these conforming loan limits. They’re a type of conventional loan and are sometimes known as conventional jumbo loans. Because government-sponsored enterprises can't purchase these larger loans, lenders typically hold them or sell them to private investors. That’s why these loans have stricter qualifications — but are still valuable for buyers purchasing higher-priced homes in expensive markets.

Both loan types offer fixed and adjustable rate options, but the qualification process and terms can vary. Understanding these differences helps you prepare for the application process and set realistic expectations about what you need to qualify.

Jumbo and conventional loan requirements and qualifications

The qualification requirements for jumbo and conventional loans vary based on the different levels of risk that lenders face with each loan type. While both require thorough financial documentation, jumbo loans typically have higher standards.

Jumbo loan requirements

Jumbo loans have stricter qualifications because lenders take on more risk with larger loan amounts. Without the backing of government-sponsored enterprises, lenders are more selective about who qualifies:

— Higher credit score requirements: Most lenders require a relatively high minimum credit score — think over 700. 

— Lower debt-to-income ratio: Your DTI ratio needs to be on the lower side, though some lenders may accept up to 50% with other strong financial factors like significant cash reserves or a high credit score.

— Larger down payment: While some jumbo mortgages allow down payments as low as 10%, many require 20% or more to avoid private mortgage insurance (PMI), while some prefer 25% to 30% down for the most competitive rates.

— Extensive documentation: To verify your income and assets, you usually have to provide two years of tax returns, bank statements, and other financial documents. Self-employed borrowers may need different documentation, like profit and loss statements and CPA-prepared financial statements.

— Higher cash reserves: Lenders often require you to have several months of mortgage payments in reserve after closing. Some lenders may require up to 12 months of reserves for large jumbo mortgages and loans.

— Employment verification: Lenders want a stable employment history. They might look for at least two years in the same field or with the same employer.

Conventional loan requirements

A conventional loan is a type of conforming loan that generally offers more flexibility in its qualification requirements, making homeownership accessible to a broader range of borrowers:

— Lower credit score threshold: You can qualify with a slightly lower credit score than jumbo loans — though the higher your credit score, the better your rates. Some first-time buyer programs may accept scores as low as 580 with additional requirements.

— Flexible down payment options: You can put down as little as 3% on a conventional loan, though you pay PMI until you reach 20% equity. First-time buyers may qualify for special 3% down programs with more benefits.

— Higher DTI tolerance: Conventional loans often allow DTI ratios up to 50%, giving you more borrowing power compared to your income. Some automated underwriting systems may approve even higher ratios.

— Standard documentation: While you still need to provide income and asset verification, the requirements are typically less stringent than jumbo loans. If you're self-employed, you can show other documentation.

— PMI options: If you put down less than 20%, you pay PMI until you reach 20% equity in your home. Some lenders offer lender-paid PMI options or PMI paid at closing.

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Jumbo vs. conventional loan rates

Interest rates for jumbo and conventional loan options vary based on market conditions and your financial profile. Jumbo loan rates are higher than traditional rates because lenders face additional risk without government backing. But this trend has shifted, and jumbo rates sometimes match or even beat conventional rates.

Several factors influence this rate relationship. Jumbo loan borrowers typically have stronger credit profiles and larger down payments, which reduces lender risk. The private investors who purchase jumbo loans may offer competitive pricing to attract this high-quality loan business. Plus, wealthy investors and institutions often view jumbo loans as premium investments, creating competitive demand that keeps rates low.

The rate difference between jumbo and conventional loans can vary by loan amount, down payment, and borrower qualifications. Sometimes the difference is negligible, while other times it can be 0.25% to 0.50% or more (which adds up to more money than you think). Your specific financial profile determines which type of loan offers you the better rate.

Whether you need jumbo or conventional rates, Better's platform calculates and displays your personalized rates right after pre-approval, giving you complete transparency in your loan options. Better also offers home equity loans and lines of credit if you want to tap into your existing home's value. Check your eligibility in minutes and access funds in as little as a week with no hidden fees.

Jumbo vs. conventional loan: Summarizing the key differences

Your loan type affects not just your monthly payment, but also how much house you can afford and what you'll need to bring to closing. Here’s a guide to the differences you need to know:

Aspect	Jumbo Loan	Conventional Loan
Loan limits	Exceeds $806,500 (varies by area)	Up to $806,500 (varies by area)
Typical down payment	10–20% minimum (often 20%+)	3–20%
Minimum credit score	680–700+	620+
Maximum DTI ratio	45% (up to 50% with a strong credit history)	Up to 50%
Private mortgage insurance	Not required with 20% down	Required with less than 20% down
Cash reserves required	2–6 months of payments	Minimal reserves required
Government backing	No	Yes (Fannie Mae/Freddie Mac)
Documentation requirements	Extensive	Standard

Which loan should you take?

The choice between a jumbo loan vs conventional loan depends on the price of the home you want to buy and your financial situation. Here's how to decide which option works best for you:

Your Situation	Best Loan Type	Why
Home price within the conforming limits	Conventional	Option for 3% down and flexible requirements
Home price exceeds conforming limits	Jumbo	Only option available for higher-priced homes
Strong lending profile and a luxury home purchase	Jumbo	Access to high-cost loan with competitive rates
First-time home buyer	Conventional	Lower barriers to entry

Find your perfect mortgage match with Better

Understanding the difference between jumbo and conventional loan options can help you make informed decisions about home financing. The key is matching your loan type to your home price range and financial situation. 

Better makes this process transparent by showing you your actual rates after pre-approval so you can see what option suits you best. Whether you need a conventional loan for your first home or a jumbo mortgage for your dream property, Better gives you the information you need to move forward with confidence.

Ready to explore your options? Get pre-approved in as little as 3 minutes to see your personalized rates. Start your homebuying journey with complete transparency.

...in as little as 3 minutes – no credit impact