When buying a home or refinancing, your loan size dictates the underwriting guidelines, rate tiers, and qualification requirements. Understanding the boundary between conforming and jumbo loans is essential.
What is a Conforming Loan?
A conforming loan is a mortgage that meets the funding criteria set by the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac). The most critical criterion is the loan limit, which is adjusted annually by the Federal Housing Finance Agency (FHFA) based on changes in national average home prices.
What is a Jumbo Loan?
A jumbo loan (or non-conforming mortgage) is a loan that exceeds the local FHFA conforming loan limit. Because these loans cannot be purchased or guaranteed by Fannie Mae or Freddie Mac, they carry higher risk for lenders.
Key Differences in Qualification
- Credit Score: Conforming loans allow credit scores down to 620, whereas Jumbo loans typically require a minimum score of 700 to 720.
- Down Payment & Equity: Conforming refinances can go up to 95% or 97% Loan-To-Value (LTV). Jumbo refinances generally limit LTV to 80%, requiring homeowners to maintain at least 20% equity.
- Cash Reserves: Jumbo lenders frequently require proof of 6 to 12 months of mortgage payments in liquid reserves (savings, brokerage accounts), while conforming loans require minimal reserves.