Conventional vs. Jumbo Mortgage Loans
Zenith
Zenith Greenwood Village, CO
Published on May 26, 2020

Conventional vs. Jumbo Mortgage Loans

Most people need a mortgage when buying a home but some borrowers will get what is known as a “conforming loan” while others will secure a “jumbo loan.” But, what is the difference between these two? Is one better than the other? Who is a candidate for these loans? And, what are the circumstances in which you would need one loan type more than the other?

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Even if you have not heard the term “conforming loan” you are probably already familiar with what it is. Nerd Wallet elaborates on what a conforming loan is, “Conforming loans meet guidelines set by Fannie Mae and Freddie Mac, whereas nonconforming loans do not.

A conforming loan usually offers a lower interest rate and lower fees. Lenders like them because they can sell the loans, which frees up capital and lets them make more loans…The Federal Housing Finance Agency sets the national conforming loan limit. For 2017, the limit is $424,100 — but it can be more in some high-cost markets. For example, conforming loans can top out at $636,150 in Alaska, Washington, D.C., and metro areas in other high-demand housing markets. Limits are even higher in some cities in California and Hawaii.

So, to get a conforming loan — which is a good thing — you’ll want to buy a house that puts you under the conforming loan limit in your area.” If you are planning to purchase a home in your area it is likely you will be looking at acquiring a conforming loan which is good news because they are generally easier to acquire loans with better interest rates. But, if the home you want to purchase is more than the conforming loan limit you will need what is known as a “jumbo loan.”

A “jumbo loan” is a “non-conforming loan” meaning that it is higher than the conforming loan limit. A jumbo loan is seen as a riskier loan for the lender because it is for a higher amount so there are more restrictions in place. First, not everyone will qualify for a jumbo loan. You must have very good credit, a large down payment (at least 20% or more), and more assets. It is likely that you will pay a higher interest rate and may pay more mortgage lender fees/closing costs. While it may sound like there are a lot of drawbacks to a jumbo loan, if you need a larger loan limit and have the credit score and financial assets required, they are a good thing.

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