Jumbo vs. Conventional Loan: Key Differences
Looking to take out a loan? Understand the differences between a jumbo and conventional loan and find out which one may be right for you. Learn more in this article.
What is a Jumbo Loan?
A jumbo loan is a home loan where the amount borrowed exceeds the local conforming loan limit. Because of this, jumbo loan interest rates are typically higher than conventional loan rates. This is because jumbo loans carry a greater investment risk for lenders.
What is a Conventional Loan?
Conventional loans are the most common type of home loan and generally carry lower interest rates than jumbo loans. In most cases, they are used to purchase a primary residence or a secondary residence. Instead of exceeding the local loan limit, they often fit within that limit.
Jumbo vs. Conventional Loan: Key Differences
The most significant different between jumbo loans and conventional loans is the amount borrowed. Jumbo loans exceed the local conforming loan limit while conventional loans stay within the limit. This can impact the interest rate, with jumbo loans having higher rates than conventional loans. Additionally, jumbo loans typically require a higher credit score than conventional loans.
When it comes to down payment, jumbo loans often require a greater initial investment than conventional loans. However, jumbo loans may have lower monthly payments due to lower mortgage rates. This is because these loans may be sold to larger investors, allowing lenders to offer more attractive rates.
Ultimately, jumbo loans and conventional loans can both offer benefits to potential borrowers depending on individual financial circumstances. Borrowers should compare jumbo vs. conventional loans and weigh the pros and cons of each before deciding which loan is the best fit.