Which home financing is best ultimately depends on your property’s cost.
Jumbo loans enable you to borrow much more than conventional loans. But they can be more difficult to qualify for and typically come with higher interest rates.
How do conventional loans differ from jumbo loans?
Conventional loans differ from jumbo loans in key ways that include how they’re backed and how much property you can buy with them.
A conventional loan is a home loan that isn’t guaranteed or secured by the federal government. Rather, it’s backed by private lenders like banks, mortgage companies and credit unions.
Not all conventional loans are conforming — that is, privately funded without the backing of the government. But most are, which makes them subject to conforming loan limits.
The limit on conforming loans is $453,100, though some of the nation’s top housing markets — like New York and Los Angeles — allow for conventional loans as high as $679,650.
A jumbo loan offers a way to finance more expensive properties. Generally, it becomes an option if your property exceeds the limits for conforming loans.
Given their size, jumbo loans are considered a riskier loan for lenders. Expect higher interest rates, larger down payments and stricter underwriting than conventional loans.
Conventional vs. jumbo loans
Compare mortgage lenders that offer both conventional and jumbo loans
Benefits and drawbacks of conventional loans
Benefits and drawbacks of jumbo loans
Which option is better suited for me?
Jumbo loans offer one convenient payment for luxury or high-value properties. Sometimes it’s worth having one house payment without juggling multiple mortgages.
However, a conventional loan typically comes with less stringent requirements and can offer stronger rates.
If your credit score is lower than 650 or you’re on the cusp of the $453,100 conventional loan limit, it may be worth piggybacking loans or multiple mortgages. By splitting your loan amount among multiple lenders, you can circumvent some of the strict requirements of a jumbo loan.
Buying a home is no small undertaking. But you have several ways to finance your purchase, no matter its cost.
As with any major purchase, shop around and weigh your options when deciding whether or not to take out a jumbo loan.