Homebuyers

Jumbo Loan vs. FHA Loan: Which Mortgage is Right For You?

Shopping for a mortgage can sometimes feel like sifting through alphabet soup, with loans such as VA, USDA, and ARMs available. But two of the most common types of mortgages that may confuse buyers are jumbo loans and Federal Housing Administration (FHA) loans.

These two loans sit on opposite ends of the borrowing spectrum. One is for luxury properties with price tags above the conforming loan limits (jumbo), the other is designed to help entry-level buyers get in the homeowning door with a smaller down payment (FHA).

So which loan fits your homebuying situation? Here’s what buyers need to know about jumbo and FHA loans.

What is a jumbo loan?

A jumbo loan is exactly what it sounds like: a mortgage that is too large to be backed by Fannie Mae or Freddie Mac, the government-backed entities that establish conforming loan limits each year.

“For high-income buyers aiming for a home above conforming limits, a jumbo loan makes sense,” said Alina Penjiyeva, a real estate professional at Momentum Realty in Jacksonville, Fla.

In 2025, the baseline conforming loan limit is $766,550 for a single-family home in most parts of the U.S. In higher-cost areas—such as San Francisco, New York, or Los Angeles—the cap is higher, up to $1,149,825. Any loan amount above those thresholds is considered “jumbo.”

However, because jumbo loans aren’t backed by Fannie or Freddie, lenders set their own rules. Buyers can expect stricter credit requirements (typically a score of 700 or higher), bigger down payments (often 20% or more), and more thorough income verification.

The upside? Jumbo loans let buyers finance multimillion-dollar homes that wouldn’t be possible with a conforming mortgage.

What is an FHA loan?

At the other end of the spectrum is the FHA loan, backed by the Federal Housing Administration. FHA loans are popular with first-time buyers, but anyone who qualifies can use one.

“For buyers seeking affordability, flexibility on credit, and lower upfront costs, an FHA loan is usually the better choice,” said Penjiyeva.

Indeed, the big appeal of these loans is that buyers can purchase a home with as little as 3.5% down if their credit score is 580 or higher. Even buyers with scores as low as 500 can qualify with a 10% down payment.

FHA loans also allow buyers to have higher debt-to-income ratios than conventional loans, making them more forgiving if you’ve got student loans or other monthly obligations.

Of course, there are some trade-offs. FHA loans come with upfront and annual mortgage insurance premiums (MIP), which add to monthly costs. And there are loan limits that vary by county—generally lower than the jumbo thresholds.

Who should consider a jumbo loan?

Jumbo loans are designed for buyers in the luxury bracket—those shopping for homes above $1 million or in high-cost metros where even modest houses exceed conforming limits.

They’re a fit if:

• You have excellent credit and steady, verifiable income.
• You can comfortably put down 20% or more.
• You want to avoid piggyback loans or splitting financing between two mortgages.

“In competitive markets like ours, having a pre-underwritten jumbo approval with 20% or more down can also make your offer much stronger in the eyes of a seller,” said Matthew Martinez, CEO and real estate broker of Northern California’s Diamond Real Estate Group.

One misconception about jumbo loans is that they used to come with sharply higher interest rates than conforming loans. Today, that gap has narrowed, and in some cases, jumbo rates can even be lower than those of conventional mortgages.

“Jumbo rates can appear slightly higher, but when you eliminate mortgage insurance and consider flexible loan designs, the total monthly cost can be much more attractive,” said Martinez.

However, buyers should shop around, since lenders set their own terms.

Who should consider an FHA loan?

FHA loans, by contrast, are geared toward buyers who might not qualify for conventional financing. They’re especially helpful if:

• You don’t have 20% saved for a down payment.
• Your credit history has a few dings.
• You’re buying in a lower- to mid-priced market where FHA loan limits can cover your target homes.

For many, FHA loans are the ticket to homeownership when other options are out of reach. That said, keep in mind that the required mortgage insurance lasts for the life of the loan if you put down less than 10%.

But you can refinance into a conventional mortgage later to shed the extra cost once you’ve built up enough equity.

“For many buyers, FHA can be a great “bridge” strategy, you use it to get into the home now, then refinance into conventional or jumbo later once your credit, equity, or market rates improve,” said Martinez.

Bottom line

Think of jumbo and FHA loans as opposite lanes on the mortgage spectrum.

Neither is “better” than the other. It all depends on where you’re starting, the type of property you want, and your financial profile.

“With either loan type, temporary buydowns are available, which allow you to ease into payments during the first year or two with negotiated seller credits,” said Martinez.

The smartest move is to discuss both options with a lender and see which one best suit your needs.