Florida real estate housing options—and the prices you might encounter—are quite varied. Some homes, especially those in higher-cost areas, fall into an exclusive category that requires a Jumbo Loan to purchase.

Whether or not you’re a first-time home buyer, you may wonder why you can’t just use a conventional mortgage loan to finance this purchase.

Understanding Conventional Loans vs. Jumbo Loans is central to making an informed decision.

This article will explain the distinctions between Conventional vs. Jumbo Loans, compare their requirements, and help you determine which loan might suit your needs.

Start your application with MIDFLORIDA Credit Union.

Differences between conventional vs. Jumbo Loans

The primary difference between Conventional Loans and Jumbo Loans is the loan amount.

Conventional Loans are also called ‘conforming loans’ and must fall below a price point  set by the Federal Housing Finance Agency (FHFA)

The FHFA loan limit varies by area, but most parts of the United States have a conforming loan limit of $766,550

Any loan amount above this government threshold is considered a Jumbo Loan

Do Jumbo Loans have maximum loan limits?

Jumbo Loans do not have a maximum limit, allowing borrowers to finance high-value properties. This makes Jumbo Loans ideal for purchasing luxury homes or properties in the higher-cost real estate markets.

Lender eligibility

Conventional Loans can be bought by government-sponsored enterprises such as Fannie Mae and Freddie Mac.

These two Government Sponsored Enterprises (GSEs) set the underwriting guidelines and maximum price (loan limit) for conforming loans, creating a standardized process for lenders and borrowers.

On the other hand, Jumbo Loans can’t be purchased by Fannie Mae or Freddie Mac.  Private lenders or investors hold the mortgage and use stricter underwriting standards.

Interest rates

The increased risk associated with lending larger amounts of money without the support of GSEs means that interest rates are typically higher.

However, the actual rate you receive will also depend on your:

• Credit score
• Income
• Down payment
• Other financial factors

Conventional Loans conform to the standards and guidelines that the GSEs set, and they often assume a large portion of the lender's risk, which is why conventional rates tend to be lower than Jumbo Loan rates.

Down payment requirement

Jumbo Loans often come with a need for a larger down payment compared to most Conventional Loans.

You might find the rare conventional lender who would accept a down payment as low as 3%, but a Jumbo Loan lender typically requires a minimum down payment of 20%.

Higher down payments mean reduced risk, demonstrating a borrower’s commitment to the property.

Documentation and approval process

Both conventional and Jumbo Loans require extensive documentation to verify the borrower’s financial situation. However, the approval process for Jumbo Loans is generally more rigorous due to the higher loan amounts and increased risk.

Borrowers may need to provide additional documentation, undergo a more detailed appraisal process, and meet stricter underwriting standards.

Jumbo Loan requirements vs. conforming mortgage requirements

Credit score

Lenders generally require higher credit scores for Jumbo Loans compared to Conventional Loans.

A minimum credit score of 700 is not unusual for a Jumbo Loan, though some lenders may set the bar even higher.

Conventional Loans, by contrast, may be available to borrowers with credit scores as low as 620—although this is somewhat rare.

Debt-to-income ratio

Whether a jumbo or Conventional Loan, your debt-to-income (DTI) ratio will also be a major pillar supporting your loan application.

• Conventional Loans: 43% is typically the maximum DTI ratio a lender would be willing to consider for a traditional mortgage, but most would prefer something lower
• Jumbo Loans: Most jumbo lenders also prefer a DTI ratio of 43% or lower, though some might accept higher ratios with compensating factors.

Note: An acceptable DTI ratio will vary depending on the lender. A general guideline is that a higher loan amount and an increased risk will translate into a demand for a lower DTI.

Income and employment history

Both conventional and Jumbo Loans require proof of stable and sufficient income.

Lenders will review:

• Tax returns
• W-2 forms or 1099s
• Recent pay stubs
• Other documents that support additional income sources

For Jumbo Loans, lenders may require more extensive documentation and a longer employment history to ensure the borrower can repay the larger loan amount.

Cash reserves

Lenders may require proof of significant cash reserves for Jumbo Loans. These reserves are typically measured in months of mortgage payments and can range from six months to a year or more.

Conventional Loans also require cash reserves, but the amount needed is generally lower than Jumbo Loans.

Property appraisal

An appraisal is essential for both conventional and Jumbo Loans, as it determines the property's current market value.

However, due to the higher loan amounts, the appraisal process for Jumbo Loans can be more rigorous and detailed.

Lenders want to ensure the loan amount does not exceed Loan-To-Value (LTV) ratio limit set by the lender.

Do you need a Conventional Loan or a Jumbo Loan in Florida?

Understanding the differences between conventional and Jumbo Loans is central to making an informed decision about your mortgage options.

With the potential for higher loan amounts, stricter requirements, and varying interest rates, it’s important to carefully evaluate your financial situation and property goals.

Whether you’re financing a high-value property with a Jumbo Loan or a more modest home with a Conventional Loan, the right mortgage can help you achieve your real estate goals in the Sunshine State.

Start your Jumbo Loan application with MIDFLORIDA

If you’re ready to explore all your mortgage options in Florida, MIDFLORIDA can help.

With competitive rates, flexible terms, and personalized service, our experienced team can guide you through the mortgage process and help you find the best financing solution for your needs.

Start your mortgage application with MIDFLORIDA today and take the first step toward securing the keys to your dream home.

This blog is for educational purposes only, not an offer of credit or advertisement for current loan terms. It does not provide legal advice. Refer to our loan web pages or consult professional advisors for specific information.

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