Conventional, Conforming, & Jumbo Loans: What’s The Difference?

5 Min Read | Published: July 5, 2023

A man and woman seated at a table, reviewing documents related to conventional, conforming, and jumbo loans.

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Conventional loans, such as conforming and jumbo loans, are the most common home mortgages in the U.S. Here are the key features of each type.

At-A-Glance

Conventional home loans are backed by private lenders rather than government agencies.
There are several types of conventional loans, such as conforming loans and jumbo loans.
A conforming loan must not exceed the maximum loan limit annually set by the Federal Housing Finance Agency.
Jumbo loans are “nonconforming,” and allow homebuyers to exceed the borrowing limits of conforming loans.

If you’re looking to buy a home, you’ll likely come across a variety of mortgage options. A conventional loan, which refers to any mortgage loan that is not backed by the U.S. government, is the most common.

But there are various types of conventional loans, including conforming loans, which must not exceed the maximum loan amounts set by the Federal Housing Finance Agency (FHFA), and jumbo loans, which allow higher borrowing limits than permitted with conforming loans.

Let’s explore how these conventional loans work.

What Is a Conventional Loan?

A conventional loan is any home loan that is not originated, guaranteed, or insured by the government. Instead, these loans are issued by private mortgage lenders, such as banks, credit unions, and other financial institutions. Conventional loans are the most common type of mortgage loan in the U.S., and they have been used to finance more than half of all new home sales for at least the last two decades.¹

Let’s say you’ve decided to apply for a conventional mortgage. Before you commit to a private lender, you may want to compare the different types of conventional mortgage loans, including conforming loans and jumbo loans. Doing so can help you determine which loan is the right fit for your financial situation.

What Is a Conforming Loan?

A conforming loan is a type of conventional loan that must adhere to specific requirements set by Fannie Mae and Freddie Mac – two government-sponsored enterprises that purchase many of the mortgages issued by private lenders – and their regulator, the FHFA.²

For example, conforming loans must not exceed the maximum loan limit set each year by FHFA, which for 2023 is set at $726,200 for one-unit single family homes.³ However, conforming loan limits are higher in areas of the country where the median real estate value exceeds the baseline loan limit, including some counties in New York, California, and Hawaii. For 2023, the high-cost-area conforming loan limit on a one-unit home is $1,089,300, which is 150% more than the typical conforming loan ceiling.

In addition to abiding by maximum loan amount limits, to qualify for a conforming loan, lenders typically require borrowers to meet other eligibility requirements dictated by Fannie Mae and Freddie Mac, including minimum credit scores, down payments, and debt-to-income ratios (DTIs).

What Is a Jumbo Loan?

If your dream home is more expensive than the average home in your area, you may want to consider a jumbo loan. A jumbo loan is considered a “nonconforming” loan because it exceeds the conventional conforming lending limits set by the FHFA. With jumbo loans, homebuyers can borrow higher mortgage amounts than they are permitted with conforming loans.

Some lenders consider jumbo loans riskier because of the larger totals and because they are not backed or regulated by Fannie Mae, Freddie Mac, FHFA, or any other government agency. This means that qualification requirements for a jumbo loan may be stricter. For example, lenders might require homebuyers seeking jumbo loans to have:

Higher incomes. Borrowers typically use jumbo loans to purchase luxury homes or houses in competitive markets. Because the price tags are higher – with some jumbo loans running in the millions – lenders may require borrowers to prove their income is high enough to cover monthly mortgage costs.

Stronger credit scores. While the minimum credit score for conforming loans is typically 620, when it comes to jumbo loans, the higher the better.

Lower debt-to-income ratio. Your DTI, the percentage of your monthly earnings that are used to pay off all debt obligations, is examined to determine how much you can afford to pay per month on your mortgage payment. In this case, the lower the better.

Larger down payments. With a higher-priced home, expect to make a larger down payment. Even if the down payment is 20%, which is a common amount for conforming loans, consider that 20% of a $1,000,000 home will be significantly more than 20% of a $300,000 home.

Government-Backed Loans to Explore

In addition to seeking a conventional loan, some borrowers may want to consider whether they qualify for government-insured mortgage loans. Examples include:

FHA home loans. FHA loans are available to low- to moderate-income applicants. These loans have lower down payment and credit score requirements.
VA home loans. The Department of Veterans Affairs guarantees mortgages issued for veterans, eligible service members, and certain surviving relatives. Many VA home loans do not require a down payment or mortgage insurance.
USDA home loans. The U.S. Department of Agriculture (USDA) offers loans for rural homebuyers with low incomes. These loans may not require a down payment.

The Takeaway

Conventional loans, such as conforming and jumbo loans, are the most common home mortgages in the U.S. Most homebuyers seek conventional mortgage loans through private lenders. Two conventional loan options to evaluate are conforming loans and jumbo loans. A conforming loan may be a good option if you’re financing a mortgage within federally established loan limits, while a jumbo loan may be worth considering if you’re financing a higher-priced luxury home that exceeds conventional limitations.

¹ “Share of New Home Sales Backed by FHA Loans Reaches 14-Year Low,” National Association of Homebuilders

² “What is a conforming loan?,” Consumer Financial Protection Bureau

³ “Conforming Loan Limit Values Map,” Federal Housing Finance Agency

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Dina Gerdeman is a business writer and editor based in the Boston area.

All Credit Intel content is written by freelance authors and commissioned and paid for by American Express.

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