Difference between Conforming Vs. Jumbo Loans

Performance Property Real Estate Question

Q: My husband and I are buying a home. Our mortgage guy said we need a jumbo loan. What is a jumbo loan and how is it different than a regular loan? Janice, Scotch Plains, NJ

A: Fannie Mae and Freddie Mac set guidelines for mortgage loans. Loans that conform to those guidelines are called conforming loans—conforming loans make up the majority of residential loans. Loans that exceed the limits set for conforming loans that can be sold on the secondary mortgage market are called jumbo loans. Lenders typically are able to sell conforming mortgages in the secondary market, replenishing their credit lines in order to originate more loans. Jumbo loans don’t have a strong secondary market to sell to so when a lender approves a jumbo loan, it assumes the risk if the borrower stops paying and the loan goes into default. Consequently, it’s more difficult to qualify for a jumbo loan than for a conforming loan and jumbo loans usually require a higher down payment. Thanks for your question, Janice.

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