What's the difference between jumbo and conforming loans?

  • A jumbo loan is bigger than a conforming loan and isn’t backed by a government entity
  • Conforming loan limit for one-unit properties in pricey areas like NYC is now $1,089,300
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By Emily Myers  |
February 2, 2023 - 12:30PM

Jumbo loans typically have slightly higher rates than conforming loans, for which the risk is generally lower.

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If you’re apartment shopping in New York City and plan on getting a mortgage, you’ve probably come across the following terms for loans: jumbo and conforming. Confused about what they are or how they differ? Or which one you might need? 

Here are some of the distinctions between the two types of loan. 

[Editor's note: An earlier version of this article was published in November 2019. We are presenting it again with updated information for February 2023.]

How much can you borrow with a conforming loan?

A conforming loan is one that can be acquired by Fannie Mae and Freddie Mac, the government-backed agencies that provide funds to thousands of banks to finance housing. Fannie and Freddie buy mortgages and either hold them or package them into mortgage-backed securities.

As with any financial product, factors that affect the risk also affect the rate. Conforming loans often have lower mortgage rates than jumbos and lenders can typically offer more options in terms of term length and whether it is fixed, adjustable or interest only. 

Conforming loans are capped by the Federal Housing Finance Agency and this changes annually. The current loan limit for one-unit properties in pricey areas is $1,089,300, crossing the $1 million threshold for the first time. For two-unit properties the loan cap is higher $1,394,775. 

Jumbo loans are bigger and not backed by a government entity

A jumbo loan is bigger than a conforming loan and isn’t backed by any government institutions. Of course, the high cost of housing in NYC means banks and lenders servicing the five boroughs are very familiar with jumbo loans.

If you need to borrow more than $1,089,300 for an apartment, you’ll need to take out a jumbo loan. 

“Since they cannot be sold to Fannie Mae, jumbo loans depend on the lender or financial institution for rate, term, and other requirements,” says Ryan Greer, senior vice president at National Cooperative Bank (a Brick Underground sponsor). 

Loan-to-value ratio and other requirements 

The amount of money you can borrow against the sales price of your new apartment or townhouse is called the loan-to-value (LTV) ratio. With a conforming loan, you can borrow up to 95 percent of the cost of an apartment. When you take out a jumbo loan you can only borrow 80 percent of the cost of the apartment.

This is the standard in NYC anyway—the city’s co-ops and condos have their own building requirements that ask you to put down at least 10 percent of the cost of a condo but sometimes more. In a co-op it is often higher, in the range of 20 to 50 percent.

With jumbo loans, "lenders may ask that you put up a larger down payment and reduce the LTV ratio to 70-75 percent," says Greer. 

There’s another financial benchmark you’ll have to meet: Banks also require you to have some funds in reserve when you take out a mortgage. The amount varies depending on whether you take out a conforming or a jumbo loan. "Some lenders may require six months of the mortgage payment, interest, taxes, and insurance for a jumbo loan versus the typical two months' worth for a conforming loan," Greer says. 

In terms of the paperwork required, Freddie Mac will accept one year’s tax returns for people who are self-employed and in business for five years, as opposed to a jumbo loan, which requires two years of tax returns.


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Emily Myers

Senior Writer/Podcast Producer

Emily Myers is a senior writer, podcast host, and producer at Brick Underground. She writes about issues ranging from market analysis and tenants' rights to the intricacies of buying and selling condos and co-ops. As host of the Brick Underground podcast, she has earned four silver awards from the National Association of Real Estate Editors.

Brick Underground articles occasionally include the expertise of, or information about, advertising partners when relevant to the story. We will never promote an advertiser's product without making the relationship clear to our readers.