The key difference between a conforming loan (also known as conventional ) and a jumbo loan is the loan amount. Conforming loans meet the criteria established by Fannie Mae and Freddie Mac, including specific loan limits, while jumbo loans exceed those limits.  Jumbo loans generally come with higher interest rates, larger down payment requirements, and stricter underwriting standards due to the additional risk associated with larger loan amounts. 

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Loan Limit:

• Conforming Loan: A conforming loan is a mortgage that meets the criteria set by Fannie Mae and Freddie Mac, the two government-sponsored enterprises (GSEs) that purchase and guarantee a significant portion of mortgages in the United States. These criteria include specific loan limits, which can vary by location but are generally set annually. In 2023, the conforming loan limit for most areas was $726,200, but in higher-cost areas such as the Bay Area and Orange County, the limits can reach $1,089,300.

• Jumbo Loan: A jumbo loan, also known as a non-conforming loan, exceeds the conforming loan limits set by Fannie Mae and Freddie Mac. Jumbo loans are used for more expensive properties and generally have higher loan amounts than conforming loans.

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Interest Rates:

• Conforming Loan: Conforming loans often have lower interest rates than jumbo loans because they are considered less risky for lenders. This is due to the backing of Fannie Mae and Freddie Mac and their conforming loan guidelines.

• Jumbo Loan: Jumbo loans typically have higher interest rates due to the increased risk for lenders, as they are not backed by government-sponsored enterprises. Lenders assume more risk with jumbo loans, and borrowers may need to meet stricter credit and income requirements to qualify.

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Down Payment:

• Conforming Loan: Conforming loans often have lower down payment requirements, making homeownership more accessible to a broader range of borrowers. Down payments can be as low as 3% for some conforming loans, but the specific requirements can vary.

• Jumbo Loan: Jumbo loans usually require a larger down payment compared to conforming loans. Typically, borrowers may need to provide a down payment of 20% or more, although some jumbo loan products may allow for lower down payments, with the caveat of higher interest rates or other terms.

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Underwriting Requirements:

• Conforming Loan: Conforming loans adhere to standardized underwriting guidelines established by Fannie Mae and Freddie Mac. These guidelines provide more uniform and predictable loan approval processes.

• Jumbo Loan: Jumbo loans have more stringent underwriting requirements, as lenders aim to mitigate the additional risk associated with larger loan amounts. Borrowers may need to demonstrate a strong credit history, high income, and low debt-to-income ratios to qualify for a jumbo loan.