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What Is a Jumbo Loan?

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If you're house shopping in a pricier area or are looking for a home loan that covers a larger-than-normal amount, you may need a jumbo loan -- or a jumbo mortgage. Read our guide to learn more about how these types of mortgages work.

What is a jumbo loan?

A jumbo loan is a type of mortgage loan with a principal balance that exceeds conforming loan limits for Fannie Mae and Freddie Mac, which are currently between $548,250 and $822,375 for a one-unit property (depending where the property is located). A loan amount can be in the jumbo category for a borrower in one county, but in the conforming category for a borrower somewhere else. Jumbo mortgage rates are competitive with the rates for conforming loans, but income, credit score, and appraisal requirements can be stricter.

Before you get too bogged down in mortgage jargon, and since we're talking about loan size, note that "conventional" and "conforming" are not the same thing:

  • A conventional loan is any mortgage that is not backed by the federal government.
  • A conforming loan is a mortgage for an amount that does not exceed conforming loan limits. It can be either a conventional loan or a government-backed loan.
  • A jumbo loan is any mortgage that does exceed conforming loan limits (even by $1). A jumbo loan can also be (and usually is) a conventional loan. But it is a nonconforming loan.

How does a jumbo loan work?

The term "jumbo mortgage" refers to a mortgage loan that exceeds the conforming loan limits set by the Federal Housing Finance Agency (FHFA) for mortgages to be acquired by Fannie Mae or Freddie Mac.

By law, the loan limits do not decrease, even during or after a market downturn. Since the limits are based on median home prices, and the average U.S. home prices didn't exceed their 2007 peak for some time, the limits were stuck for years. In 2017, the limits increased for the first time in over a decade. They have increased every year since then.

The baseline conforming loan limit for a one-unit property is now $548,250. This limit applies to conforming loans in the contiguous United States, the District of Columbia, and Puerto Rico. If the home is in a high-cost area, the limit can be as high as $822,375. It's based on median home values, so some county limits fall between those two figures. The high-cost area limit applies to all conforming loans in Alaska, Guam, Hawaii, and the U.S. Virgin Islands. The limits for multi-unit properties are as follows:

Number of Units BASELINE CONFORMING LOAN MAXIMUM HIGH-COST AREA MAXIMUM
1 $548,250 $822,375
2 $702,000 $1,053,000
3 $848,500 $1,272,750
4 $1,054,500 $1,581,750
Data source: Federal Housing Finance Agency

Your loan officer can tell you what the conforming loan limit is in the area where you want to buy, and whether you need to look at jumbo home loan options. You can also check the FHFA website to find the conforming loan limit for your county.

If the loan amount (not the purchase price) on a home you wish to purchase will exceed these limits, you'll probably need to get a jumbo mortgage. Jumbo loans have interest rates around -- and sometimes even lower than -- conforming loans. However, since jumbo loans aren't eligible to be purchased by Fannie Mae and Freddie Mac, and therefore represent a greater risk to the lenders, they tend to have stricter requirements. Also, closing costs may be higher on a jumbo loan because many of them reflect a percentage of the loan amount.

The jumbo loan limit is set by the lender and is typically between $1 million and $5 million.

How to qualify for a jumbo mortgage

The lending standards for jumbo mortgage loans vary by lender, but in general, here's what to expect.

Credit score needed for a jumbo loan

Credit score requirements tend to be a little more stringent for jumbo loans. You'll need a strong credit history, which typically means a FICO® Score of 700 or higher for a jumbo loan.

Debt-to-income ratio for a jumbo loan

You can get approved for a jumbo mortgage with a debt-to-income ratio as high as 45%, but these loans often have higher reserve requirements than conforming loans. You may need to show one year's worth of mortgage payments in your bank account.

Down payment requirements for jumbo loans

Many jumbo lenders require a down payment of at least 20%, so private mortgage insurance (PMI) is not an issue. However, some jumbo lenders accept a lower down payment and charge PMI, which will increase your monthly payment. Use a mortgage calculator to figure out how much cash you might need.

Appraisal requirements for a jumbo loan

Like a conforming loan, the property's appraisal must justify the price you're paying for the home. Many jumbo mortgage lenders require two appraisals, as opposed to just one for a conforming mortgage.

FHA jumbo loan

The vast majority of FHA loans are for amounts under the one-unit base limit ($548,250 in 2021). An FHA loan above the one-unit base limit is called an FHA high balance loan, which some people call an FHA jumbo loan. In fact, it's not a jumbo loan. All FHA loans are subject to conforming loan limits in the county where the property is located, and some counties have higher limits (up to $1,581,750). See our list of the best FHA lenders to learn more.

VA jumbo loan

VA borrowers who have full entitlement are not subject to a loan limit. If you qualify, you can get a VA loan of any size.

Loans to borrowers with remaining entitlement (less than full entitlement) are subject to conforming loan limits. If you need a bigger loan, your lender may be willing, if you make a down payment equal to 20% of the amount that exceeds the conforming loan limit.

Ready to get a jumbo loan? See The Ascent's list of best jumbo loan lenders.

Jumbo loans vs. conforming loans

There are advantages to a jumbo loan mortgage loan vs. a conforming loan. With a jumbo loan, you can borrow more, which could allow you to get into a home you otherwise wouldn't be able to buy. And with today's low mortgage rates, there isn't an obvious financial penalty for borrowing a larger amount of money. Jumbo mortgage rates can be even lower than conforming mortgage rates.

You should also be aware of a few key disadvantages to jumbo loans. Jumbo loan credit requirements can be stricter. Since these loans can't be purchased by Fannie Mae or Freddie Mac, they are seen as riskier than conforming loans. While you may be able to qualify for a conventional mortgage with a FICO® Score as low as 620 or an FHA loan with a score in the 500s, those scores probably won't get you a jumbo loan. Jumbo mortgage lenders typically require a score of 700 or higher.

Still have questions?

Here are some other questions we've answered:

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FAQs

  • A jumbo loan is any mortgage that exceeds the current loan limits set by the Federal Housing Finance Agency (in 2021 the limit is between $548,250 and $822,375 for a one-unit property, depending on where the property is located).

  • Most jumbo loans have a higher credit score requirement and a lower debt-to-income ratio limit. Many jumbo loans require two property appraisals.

  • A jumbo loan is a conventional loan, which means it is a mortgage that is not backed or insured by the federal government. A jumbo loan is different from a conforming loan. Jumbo loans are loans outside the loan limits set by Fannie Mae and Freddie Mac -- so, they're larger loans, and may be more difficult to qualify for. Conforming loans are mortgages within those limits (and, as a result, these are smaller loans and usually easier to qualify for).

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