When you’re shopping for a home loan, it’s important to fully understand your options so you can get the most out of your mortgage. Two loan loan types you may come across are Conventional Loans and Jumbo Loans, particularly if you are financing a higher-priced home. Each serves a unique purpose depending on the price of your home and your financial situation. Let’s take a closer look at what these loan options offer, how they work and where they differ.
What Is A Conventional Loan?
A Conventional Loan is one of the most popular mortgage options available. They typically work best for borrowers with good to excellent credit and fall within standard loan limits set each year.
Conforming loan limits (set annually by the FHFA) determine how large a mortgage can be while still qualifying as a conventional loan. If a loan exceeds these limits, it typically requires Jumbo Loan financing instead. Conventional Loans stay within conforming loan limits, so they are a great fit for primary residences and can make home purchases more accessible for first-time and repeat buyers alike.
These loans also offer lower down payment options, as low as 3% for qualified buyers. Borrowers can remove their private mortgage insurance (PMI) payment with 20% down, and choose from fixed-rate options with terms from 10, 15, 20, 25 or 30 years. Purchase, rate-and-term refinance and cash-out refinance options are available.
What Is A Jumbo Loan?
A Jumbo Loan is a great option for higher-priced homes in more expensive housing markets, that go above conforming loan limits. With a Jumbo Loan, you get fixed-rate loan options for larger loan amounts, financing for loan amounts up to $3 million, and options for primary residences, vacation homes and investment properties.
Additionally, Jumbo Loans offer the ability to purchase, refinance or take cash out. They’re well-suited for borrowers with strong credit and financial profiles.
The Key Differences
Conventional Loans stay within conforming loan limits, whereas Jumbo Loans exceed those limits to support higher-priced properties. Conventional Loans allow for lower down payments, whereas Jumbo Loans typically require a larger down payment. Both Conventional and Jumbo Loans can be used for primary residences, vacation homes and investment properties. For more information on financing investment properties, learn about our DSCR Loans here or talk to one of our Home Loan Experts.
The right loan for you depends on how much you plan on spending, your personal financial goals and overall mortgage needs. If you’re looking to purchase a home within standard loan limits and lower down payment flexibility, a Conventional Loan is the right fit. However, if you’re buying a higher-priced home and need the loan amount to exceed conforming limits, a Jumbo Loan is likely the way to go.
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*As a member of the AmeriHome family, borrowers are part of the AmeriPurchase+ program and qualify for a $750 lender credit for all of your home purchases done with AmeriHome, for any property you own. Credits will be applied only if your loan closes with AmeriHome. This offer can not be combined with any other offers and is not applicable for FHA Streamline, or VA IRRRL Refinance transactions. Other restrictions may apply. Terms and conditions are subject to change. The AmeriPurchase+ program is subject to termination without notice.
