A jumbo mortgage is a type of home loan that exceeds the conforming loan limits set by Fannie Mae and Freddie Mac. In the Boston real estate market, where home prices tend to be high, jumbo mortgages are quite common.

The main difference between a jumbo mortgage and a conventional mortgage lies in the loan amount. Conventional mortgages are typically considered "conforming loans" and adhere to the loan limits set by Fannie Mae and Freddie Mac. In 2021, the conforming loan limit for a single-family home in most areas of the United States is $548,250. Any loan amount above this limit is considered a jumbo mortgage.

One significant distinction between jumbo and conventional mortgages is the qualification criteria. Jumbo mortgages often require a higher credit score and a larger down payment compared to conventional mortgages. Lenders may also have stricter debt-to-income ratio requirements for jumbo loans.

Another difference is the interest rates. Jumbo mortgages typically have higher interest rates compared to conventional mortgages. This is because jumbo loans carry more risk for lenders due to their larger loan amounts. Lenders mitigate this risk by charging higher interest rates.

For example, let's say a homebuyer in Boston wants to purchase a luxury property worth $1.5 million. If they opt for a jumbo mortgage, they might need to make a down payment of 20% ($300,000) and secure a loan for the remaining $1.2 million. On the other hand, if they choose a conventional mortgage, they could potentially make a lower down payment, depending on their creditworthiness and the loan program they qualify for.

It's important to note that jumbo mortgages are not backed by government-sponsored entities like Fannie Mae and Freddie Mac. This means that lenders hold these loans on their own books or sell them to private investors.

In conclusion, a jumbo mortgage is a type of loan that exceeds the conforming loan limits and is commonly used in high-cost real estate markets like Boston. The key differences between jumbo and conventional mortgages lie in the loan amount, qualification criteria, and interest rates.