Some of us have caviar tastes and a hot dog budget, but for others, a different lifestyle is the day-to-day reality. If you're one of these people, a jumbo loan might be an option to pay for your home -- whether you don't have the liquid funds for the purchase or you don't want to drain your savings. Read on to learn about jumbo loans and how they're used.
What is a jumbo loan?
Jumbo loans are mortgages that exceed the limits set by the Federal Housing Finance Agency (FHFA). The agency oversees Fannie Mae and Freddie Mac, which buy conventional mortgage loans from lenders.
The upper limit for conventional mortgages changes each year, and varies based on the cost of housing in an area. In 2025, the limit is $806,500 for most of the U.S. and $1,209,750 for Alaska, Hawaii, Guam, and the U.S. Virgin Islands. These limits will increase slightly in 2026.
Since jumbo loans exceed the limits set by the FHFA, very few banks can or will purchase them, unlike with conventional loans. Because there's a limited secondary market for these loans, the bank making the loan usually has to hold onto the loan and the associated risk. As a result, the number of banks that make jumbo loans is limited.
How do you get a jumbo loan?
Jumbo loans can be very difficult because the bank itself often has to hold the loan for the next 15 to 30 years, depending on the length of the mortgage.
Not only must the house appraise high enough to secure the loan, but most of the time, a jumbo loan requires at least two different appraisals from unassociated appraisers to ensure the value is there. These are often highly unique homes, and this is another way that banks can protect themselves.
Borrowers have very similar requirements to other loans, though there may be a higher minimum credit score, often around 700. You'll also need a down payment of 10% to 20% of the home's purchase price, and a low debt-to-income ratio of around 33%.
Closing costs will also be substantial. As a percentage, they're similar to a traditional mortgage, but the overall amount is higher since you're buying more house.
What are the pros and cons of jumbo loans?
A jumbo loan allows you to borrow more money for a home purchase. The larger loan amount could help you preserve your cash for other projects, purchases, or investments. For example, if your investment portfolio is seeing a steady 10% return and the interest rate on your jumbo loan is only 8%, it might not make sense to liquidate part of that for a home purchase.
However, jumbo loans can also be more difficult to secure due to the larger risk the purchase represents to the bank. You'll face additional requirements for the home's value assessment, and the credit and debt-to-income requirements are stricter.
How is a jumbo loan different from a traditional mortgage loan?
Jumbos are similar to traditional mortgage loans on the surface. Like traditional mortgages, they have term lengths of up to 30 years, and they have monthly interest and principal payments due. Jumbo loans can be fixed-rate mortgages or variable-rate mortgages.
However, they represent a huge risk for banks that issue them and any investors willing to buy them. The risk is due to both the limited secondary market for jumbo loans, as well as the unique characteristics of the properties they secure.
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Many properties purchased using jumbo loans are one-of-a-kind homes that are unlikely to have high-quality comps for valuation purposes. Essentially, this means that if the bank forecloses on the home due to a loan default, it's difficult to determine if they could sell it for enough to cover the loan.
This risk can be mitigated somewhat for banks by securing multiple appraisals from different appraisers. But the market for extremely high-end homes works differently and independently of the primary housing market.
Jumbo loans generally aren't included in mortgage-backed securities due to the risk involved, but they do sometimes show up in private-label mortgage-backed security products. You may need to be an accredited investor to purchase them, but you may also be able to gain exposure through mutual funds or ETFs that contain mortgage-backed security products with jumbo loans.
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