What's the Skinny on Jumbo Loans?

Let's talk about conforming loans vs. jumbo loans in the mortgage world.

The Guidelines Each year in October, the Federal Housing Finance Agency, or FHFA, collects data on the national median home value and compares that number to October of the previous year. If there is an increase, the conforming loan limit will increase by the same amount.

In October 2019, the year-over-year median home value increase was 5.38%. Therefore, the conforming loan limit for a single-family home in 2020 will rise to $510,400, up from $484,350. The loan limits on multi-unit properties will rise to $653,550, $789,950 and $981,700 for a duplex, triplex and fourplex, respectively.

Loan Differences Loans amounts at or under these limits qualify as ​conforming loans​. They "conform" to guidelines set forth by Fannie Mae and Freddie Mac. Conforming loans make up the majority of residential loans funded. Loan amounts that are above these limits are referred to as ​jumbo loans​. With a conforming loan, lenders are able to sell the mortgage in the secondary market, replenishing their credit lines in order to make more loans. Jumbo loans have no such robust secondary market. When a lender approves a jumbo loan, it assumes the risk should the loan ever go into default.

Naturally, this makes it more difficult to qualify for a jumbo loan. The minimum credit score for most conforming loans ranges from 580 to 620. Jumbo minimums range from 720 to 740. Some jumbo loans can require a lower score, but the rates and terms are much more stringent.

Down payment requirements for jumbo loans are also much higher. A buyer can secure a conforming loan with a down payment of just 5% (or even 3% for special first-time programs) with the help of private mortgage insurance. Jumbo loans have no such insurance policies available and require a minimum down payment of 20% of the sale price of the home. Providing a down payment of 25% or more will make it easier to qualify.