Conforming Loans Versus Jumbo Mortgages

What is the difference between compatible loans versus large mortgages?

It is a known fact that the mortgage lending requirements on conforming loans are much looser than the lending requirements for Jumbo Mortgages.

Here are the advantages of conforming loans versus Jumbo Mortgages:

  • Conventional Mortgages have minimum credit score requirements of 620 FICO credit scores versus 700 credit scores for Jumbo Mortgages
  • Debt to Income Ratios on Conventional Mortgages are normally capped at 50% DTI for Fannie Mae and 50% DTI for Freddie Mac
  • Debt to Income Ratios on Jumbo Mortgages depends on the individual Jumbo Lenders
  • Most Jumbo Lenders have their debt to income ratios capped at 40% DTI while some may go as high as 43% DTI
  • Down payment requirements on Conforming Loans are either 3% down payment for first time home buyers and 5% down payment for seasoned home buyers
  • Most Jumbo Lenders require a 15% to 25% down payment
  • Mortgage rates on Conforming Loans are substantially less than those of Jumbo Loans
  • Jumbo Lenders will normally require reserves of 6 months of Principal, Interest, Taxes, and Insurance

Conforming Lenders will not require reserves unless it has been stated on the Automated Underwriting System.

Other Advantages Of Conforming Loans Versus Jumbo Mortgages

Conventional Loans offer much looser credit requirements than Jumbo Mortgages.

  • Conventional Loans are called Conforming Loans
  • This is because they need to conform to Fannie Mae and Freddie Mac mortgage lending guidelines

Although Conventional Loans are private loans originated and funded by banks and private mortgage lenders, these lenders do not want to hold them in house.

FHFA Increases Conforming Loan Limits Due To High Home Prices

Lenders want to package them up and resell them to Fannie Mae and Freddie Mac:

  • This is so they can clear out their warehouse lines of credit and reuse their warehouse lines of credit to originate and fund more Conventional Loans
  • However, in order for these lenders to be able to sell them to Fannie Mae and Freddie Mac, these loans need to conform to Fannie/Freddie lending guidelines
  • If they do not, Fannie Mae and Freddie Mac will not buy them
  • Lenders are stuck holding these loans in their portfolio
  • Fannie Mae and Freddie Mac are private corporations owned by shareholders but are backed by the federal government
  • This is the reason they call Fannie Mae and Freddie Mac government-sponsored enterprises, or GSEs
  •  Jumbo Mortgages do not have set Lending Guidelines

Each Jumbo Mortgage Lenders have their own Lending Requirements, unlike Conforming Loans.

FHFA Increases Conforming Loan Limits: Guidelines On Conforming Versus Jumbo Mortgages

Gustan Cho Associates are experts in both conforming and jumbo mortgages. Mortgage qualification requirements on Conventional Loans are much easier and looser than Jumbo Mortgages.

Here are the comparisons on mortgage lending qualification requirements on Conventional Versus Jumbo Loans:

  • 4 year waiting period to qualify for Conventional Loans after bankruptcy, deed in lieu of foreclosure, and short sale
  • 7 year waiting period after foreclosure to qualify for Conventional Loan
  • Most Jumbo Lenders require a 7 year period after bankruptcy, deed in lieu of foreclosure, foreclosure, short sale
  • Conforming Loans will go off DU/LP Findings per Automated Underwriting System, AUS
  • Jumbo Mortgages will go by mortgage underwriter discretion
  • Conforming Loans can be sold on the secondary market
  • Jumbo Mortgages are normally portfolio loans.

Minimum credit scores for Conforming Loans are 620 FICO:

  • Jumbo Lenders normally want 700 FICO. 740 FICO required for 10% down payment Jumbo Mortgages

Piggyback Mortgages of 80-15-5 permitted on Conventional Loans:

  • CLTV can be up to 95% CLTV. Jumbo Loans, no Piggyback Mortgages are permitted