For buyers looking at higher-value properties, a jumbo loan may be the right financing tool. In this post, we’ll break down what jumbo loans are, how they differ from conforming loans, and why some buyers choose to take out a mortgage even when they have enough cash to buy a home outright.
What Is a Conforming Loan?
To understand jumbo loans, it helps to first understand conforming loans. A conforming loan is a mortgage that meets the guidelines set by the Federal Housing Finance Agency (FHFA). These loans conform to limits that allow them to be purchased by government-sponsored entities like Fannie Mae and Freddie Mac. Because they meet standardized criteria, conforming loans usually have lower interest rates, easier qualification requirements, and more flexible terms.
For 2025, the conforming loan limit for a single-family home in most parts of the U.S. is $766,550, though in certain high-cost areas the limit can be higher. Anything above those limits is no longer considered conforming and is categorized as a jumbo loan.
What Types of Loans Are Considered Conforming?
Conforming loans aren’t just limited to a single type of mortgage. Some of the most common types of conforming loans include:
- Conventional fixed-rate mortgages (15-year, 30-year, or other terms)
- Adjustable-rate mortgages (ARMs) (start with a fixed period and then adjust based on the market)
- FHA loans (backed by the Federal Housing Administration but still within FHFA loan limits)
- VA loans (for eligible Veterans and service members, within FHFA loan limits)
- USDA loans (for rural and suburban homebuyers who meet program guidelines)
Because these loans stay under FHFA’s limits, borrowers can access a wide range of financing options, often with lower down payment requirements and more flexible approval standards.
What Is a Jumbo Loan?
A jumbo loan is a mortgage that exceeds the conforming loan limits, making it too large for purchase by Fannie Mae or Freddie Mac. Because lenders hold more risk with jumbo loans, the requirements are stricter. Borrowers typically need strong credit scores (often 700 or higher), larger down payments (20% or more is common), and proof of stable income and significant reserves. Jumbo loans can be used for primary residences, vacation homes, and investment properties, and they allow buyers to purchase high-value homes in expensive real estate markets without liquidating massive amounts of cash.
How Jumbo Loans Differ from Conforming Loans
While both conforming and jumbo loans provide financing for home purchases, there are some key differences:
- Loan Amounts: Conforming loans are capped at FHFA limits, while jumbo loans finance much larger amounts, sometimes into the millions.
- Types of Loans Available: Conforming loans can be fixed-rate or ARMs, and include FHA, VA, and USDA. Jumbo loans, on the other hand, are generally limited to Conventional fixed-rate and adjustable-rate mortgages since government-backed programs don’t apply to them.
- Qualification Standards: Jumbo loans demand stronger credit scores, lower debt-to-income ratios, and larger down payments than conforming loans.
- Interest Rates: Conforming loans historically had lower rates, but today jumbo loans can be highly competitive and sometimes offer equal or even better terms depending on the lender.
- Risk Factor: Conforming loans can be sold to Fannie Mae and Freddie Mac, which reduces lender risk. Jumbo loans cannot, so lenders assume more risk and therefore set higher borrower standards.
Why Get a Mortgage If You Could Pay Cash?
It might sound counterintuitive: why borrow money if you already have enough to buy a house outright? But many financially savvy buyers choose a jumbo mortgage even when they don’t need one, for strategic reasons. Mortgage rates, even on jumbo loans, are often lower than the long-term returns of the stock market. By financing a home at a low rate, you can keep more of your cash invested in assets that may grow faster than the cost of the loan. Keeping cash on hand also preserves liquidity, meaning you’ll have funds available for emergencies, business opportunities, or additional investments rather than locking it all into real estate. In addition, mortgage interest may be tax-deductible (up to certain limits), offering another financial advantage.
Is a Jumbo Loan Right for You?
If you’re buying a high-value property and want to balance liquidity with long-term financial growth, a jumbo loan could be a smart move. Even if you could pay cash, financing a home may allow you to keep your money working harder elsewhere while still enjoying the benefits of homeownership.
Final Thoughts
A jumbo loan isn’t just about affording a more expensive home. It’s about strategically managing your wealth. Whether you’re looking to maximize investment opportunities, preserve cash flow, or simply buy the home of your dreams, understanding how jumbo loans work compared to conforming loans can help you make the most informed decision.