Jumbo vs. Conventional Loans
High-balance loans give you extra borrowing power, and jumbo loans are even more extreme, giving you the potential to borrow far more — if you can qualify. Both high-balance and jumbo loans can be conventional or nonconventional, meaning that you can access them through private lenders like banks or through loan programs backed by government agencies.
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How large loans are defined
There are two different ways of classifying large loans: by loan program or by loan amount. If you remember to keep those approaches to loans separate, the many labels used to describe large loans will be far less confusing.
|Classifies by loan program
|Classifies by loan amount*
| Conventional: A program backed by a private financial institution
Nonconventional: A program backed by a government agency
| Conforming: Has a loan amount under the conforming loan limits
Super-conforming (aka high-balance): Has a higher-than-average loan amount but is still within the conforming loan limits
Nonconforming: Has a loan limit higher than the conforming loan limits
*Note: Conforming loans must also meet additional rules set by Fannie Mae and Freddie Mac
The Federal Housing Finance Agency (FHFA) sets national and local limits for loan amounts each year. Doing so draws a line in the sand, which defines whether a loan is conforming or nonconforming, based on its amount. The 2023 conforming loan limit for a single-family home in most of the U.S. is $726,200, but rises to just over a million — $1,089,300 — in some high-cost areas.
Why does the conforming loan limit exist?
The conforming loan limit is set to prevent homebuyers from biting off more than they can chew and potentially losing their homes to foreclosure. But homebuying isn’t a one-size-fits-all experience. High-balance mortgages exist to help finance homes in high-cost areas of the country, and jumbo loans exist for even higher-cost homes.
Conventional or nonconventional
Jumbo mortgages are for loan amounts so large that they exceed the conforming loan limits. A jumbo loan is the largest personal, residential mortgage you can get.
Yet they can still be “conventional” or “nonconventional” — you can get a jumbo loan from private financial institutions and government agencies.
Conventional or nonconventional
If you’re in a high-cost market, such as the San Francisco Bay Area, you’re going to have trouble finding any home with a selling price under $726,200. Luckily, the FHFA knows this and prepares by setting a higher local conforming limit in areas with the most expensive housing markets.
Because high-balance loans still fall under the FHFA’s local limits, they are considered conforming loans. If you want to borrow an amount even higher, though, you’ll be looking at a jumbo loan.
Here’s a map of conforming loan limits by county.
Conventional loans vs. government-backed loans
Conforming or nonconforming
You could potentially get any type of loan — “regular,” high-balance or jumbo — from a conventional lender. Conventional loans are mortgages you can get through loan programs that aren’t backed by a government agency. Instead, they’ll often be backed by banks, credit unions, Fannie Mae or Freddie Mac.
Conversely, government agencies back nonconventional loans. Examples include:
- Federal Housing Administration (FHA) loans
- Veterans Administration (VA) loans
- U.S. Department of Agriculture (USDA) loans
The only government-backed loan program that offers jumbo loans is from the VA, and offers military borrowers with full entitlement the ability to borrow as much as they need with no cap.
Are Fannie Mae and Freddie Mac government agencies?
No, Fannie and Freddie are government-sponsored enterprises (GSEs), not government agencies. They were created by Congress but operate as corporations.
It’s important not to think of Fannie and Freddie as government agencies because the loans they back aren’t considered government-backed loans. Learn to associate Fannie and Freddie with conventional lending, and you’ll be good to go.
Jumbo vs. conventional loan requirements
It’s usually much harder to qualify for a jumbo loan than a conforming conventional loan, and will take significant amounts of cash and a high income.
|Maximum loan amount
|No limit (varies by lender)
|No limit with full entitlement, FHFA conforming loan limits with partial entitlement
|$726,200 - $1,089,300 depending on location
|No minimum set by the VA, but many lenders require at least 620
|Debt-to-income (DTI) ratio
|Six to 24 months' worth of mortgage payments.
|Only in special cases involving multiunit rental properties.
|Two to six months' worth of mortgage payments.
Typically required if your:
• Credit score is below 700
• DTI is above 36%
• Down payment is low