What is the different between conforming and jumbo loans?

Banks and lending intuitions can re-sell mortgages to either Fannie Mae or Freddie Mac if the loan meets particular guidelines established by Fannie or Freddie. In addition to the traditional credit score, loan to value (LTV), and debt to income (DTI) requirements, both Fannie and Freddie have a limit on the dollar loan of the amount they can buy from banks and lending institutions. This dollar requirement has now become the definition of a conforming loan for the most part. Mortgages are generally considered conforming if they are under the Fannie/Freddie loan amount threshold.

Jumbo loans are loans that are larger than conforming loans and are subject to higher interest rates since the bank is lending a larger dollar amount and can’t sell them to Freddie or Fannie. That amount used to be a cut and dry answer, but the federal government has recently changed the guidelines for what dollar amount constitutes a conforming vs. jumbo loan. Previously the limit for a conforming loan was $417,000, but the government has raised this limit in a few hundred counties where home values are the highest to help support the housing marketing.

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