What Happens When Your Mortgage Exceeds the Conforming Loan Limit

Most homeowners have heard the term “conforming loan” but aren’t sure what it really means. Simply put, a conforming loan is a mortgage that meets the size and quality standards set by two government-backed companies: Fannie Mae and Freddie Mac. These two organizations buy most home loans from lenders, which keeps the mortgage market running smoothly. The key thing that makes a loan “conforming” is its dollar amount. Every year, the Federal Housing Finance Agency sets a maximum loan limit for most counties in the United States. In 2024, that limit for a single-family home is $766,550 in most areas, and higher in expensive housing markets like parts of California, New York, and Hawaii. Any loan amount above that limit cannot be sold to Fannie Mae or Freddie Mac, so it becomes a non-conforming loan. The most common type of non-conforming loan is called a jumbo loan.

When you need a mortgage larger than the conforming limit, the rules change. First, your interest rate will almost certainly be higher. Lenders consider jumbo loans riskier because they cannot easily sell them to Fannie or Freddie. They keep these loans on their own books or sell them to private investors, and those investors demand a higher return. That higher cost gets passed to you. On average, jumbo loan rates are about half a percentage point higher than conforming rates, though the difference can shrink or grow depending on market conditions. So if the conforming rate is 6.5%, you might pay 7% or more for a jumbo loan. Over the life of a 30-year mortgage, that adds up to tens of thousands of dollars in extra interest.

Second, your down payment will be bigger. For a conforming loan, you can put down as little as 3% with certain programs. For a non-conforming jumbo loan, most lenders want at least 10% down, and many require 20% or even 30% if you have less-than-perfect credit. That’s because the lender wants to see you have serious skin in the game. A bigger down payment reduces their risk if home prices fall and you default. If you’re buying a house for $1 million and the conforming limit is $766,550, you need a jumbo loan for the remaining $233,450. But because the total purchase price is high, the lender looks at the whole picture. Expect to bring a substantial amount of cash to closing.

Your credit score also matters more. For a conforming loan, you can often qualify with a credit score of 620 or 640. For a jumbo loan, lenders typically want a score of 700 or higher. Some even require 720 or 740. They want to be sure you have a history of paying your debts on time. If your credit is good but not excellent, you might still get a jumbo loan, but you’ll pay a higher rate or be asked for an even larger down payment.

Another difference is the appraisal process. With a conforming loan, the appraisal is straightforward. The appraiser compares your home to recent sales of similar homes. With a jumbo loan, the appraisal is often more detailed. Lenders may require two appraisals, not just one. They want to be absolutely sure the home is worth the amount you’re borrowing. If the appraisals disagree, the process can stall. You might also have to pay for a second appraisal out of pocket, adding hundreds of dollars to your closing costs.

Documentation is stricter too. Lenders need to see more proof of income and assets for jumbo loans. They may want two years of tax returns, recent pay stubs, bank statements, and proof of large deposits. If you are self-employed, expect even more paperwork. Conforming loans are more standardized, so lenders can use automated systems to verify your information quickly. Non-conforming loans require a manual underwrite, which takes longer and can be more stressful.

One advantage of a non-conforming loan is that you can borrow a very large amount. If you live in an expensive area, the conforming limit might not cover the cost of a typical home. For example, in high-cost counties like San Francisco or New York City, the conforming limit for 2024 is $1,149,825. That’s called a high-balance conforming loan, which is still conforming because it meets Fannie and Freddie rules for those specific areas. But if you need $1.5 million, you must go jumbo. So the choice isn’t really optional for many buyers.

Finally, remember that jumbo loans are not necessarily bad. They allow you to buy the home you want. But you need to prepare for higher costs, bigger down payments, and stricter requirements. Shop around among several lenders because jumbo loan rates and terms vary widely. A good mortgage broker can help you find a competitive deal. And if you can keep your loan amount under the conforming limit—by putting more money down or buying a less expensive home—you’ll usually save money in the long run.