If you need to take out a mortgage loan to buy a home with a large price tag, you might not be able to get a conventional home loan. You may instead have to apply for a jumbo loan. Those two loan types are different not only in size, but in requirements. Lenders are stricter when passing out jumbo mortgage loans.
Conforming Loan Minimums
As the name suggests, the main difference between a jumbo mortgage loan and a regular, or conforming, mortgage loan, is size. Jumbo loans are too large to be sold to the government-sponsored entities, Freddie Mac or Fannie Mae. In most parts of the country, mortgage loans must be $417,000 or less to be sold to these enterprises. In certain high-income parts of the country -- places like New York City or Los Angeles -- Freddie Mac or Fannie Mae can't purchase any mortgage loans higher than $625,000 for one-unit buildings. If you need a loan for more than these limits, you'll need to apply for a jumbo loan.
The conforming loan limits rise for multifamily homes with two or more units. For 2013, homes with two units have a maximum conforming loan limit of $533,850. That limit rises to $645,300 for three-unit properties and $801,950 for any properties with four or more units.
Higher Down Payments
Most lenders require higher down payments for borrowers who want jumbo loans. While borrowers taking out regular mortgage loans can find lenders who will accept down payments as low as 5 percent, borrowers seeking jumbo loans will usually need a down payment of 25 percent to 40 percent, according to financial Web site Bankrate. For a borrower seeking a $500,000 mortgage, that comes out to a down payment of at least $125,000.
Higher Credit Scores
Lenders also typically require higher credit scores for borrowers applying for jumbo loans. Realtor.com says that borrowers usually need a credit score of at least 720. Borrowers can qualify for conventional loans with credit scores of 620 and for FHA-insured loans with credit scores as low as 500.
Lenders also have stricter requirements for jumbo loans when it comes to the amount of savings that they require borrowers to have. According to Bankrate, most lenders require that borrowers have at least 10 percent of the amount they are borrowing in savings. If you are taking out a $600,000 mortgage loan, this means that you'll need to have at least $60,000 in savings or brokerage accounts.
Don Rafner has been writing professionally since 1992, with work published in "The Washington Post," "Chicago Tribune," "Phoenix Magazine" and several trade magazines. He is also the managing editor of "Midwest Real Estate News." He specializes in writing about mortgage lending, personal finance, business and real-estate topics. He holds a Bachelor of Arts in journalism from the University of Illinois.