A jumbo loan, also commonly referred to as a jumbo mortgage, is a type of financing that is suitable for real estate purchases that exceed the maximum conventional loan amount designated by the Federal Housing Finance Agency (FHFA). These loans commonly have stricter qualification requirements but have comparable interest rates when compared with standard mortgage loans.
Key Takeaways:
- A jumbo loan’s purpose is to make high-value properties accessible in high-cost-of-living areas.
- It’s available via banks, credit unions, online lenders, and mortgage companies.
- It’s commonly sought after by borrowers looking to buy real estate that acts as their primary residence, vacation home, or investment property.
How Does a Jumbo Loan Work?
Jumbo mortgages operate the same way as a standard mortgage in that you’ll be expected to pay monthly installments over the course of the loan term. The main difference is that the loan amount necessary for the mortgage is typically much larger than average.
Jumbo loans come into play when the financing needed exceeds the maximum conforming loan limit (CLL) within a geographical area, as determined by the FHFA. They can be structured with either a fixed or variable rate, with amortization periods of up to 30 years. While rates are generally higher than other conventional mortgage loans, it’s not by a large margin historically.
Most lenders will issue financing up to a few million dollars, depending on the property type, location, and your qualifications as a borrower. These loans can’t be resold and are considered to be a type of portfolio loan since they usually remain on the lender’s books.
Jumbo Conforming Loan Limits
CLLs can vary by state. If the financing you need exceeds this limit, then you’ll be considered for a jumbo loan. You’ll likely come across this financing option if you’re looking to acquire real estate that exceeds the loan limit within your area.
- In 2024, the CLL ran from $766,550 to $1,149,825, depending on the county.
- In 2025, the CLL ranges from $806,500 to $1,209,750, depending on the county.
Jumbo Loans vs Conforming Loans
The main difference between a jumbo loan and a conforming loan is merely the amount of financing available. Conforming loans are more common and follow criteria designated by the government-sponsored entities Fannie Mae or Freddie Mac. Jumbo loans are not subject to these criteria and generally have a smaller market need.
You’ll typically pay a bit more interest with a jumbo loan; however, you’ll have more buying power compared with conforming loans. That said, you must also have stronger qualifications in regard to your credit score, cash reserves, and down payment to offset the risk to the lender.
Rates, Terms & Qualifications of a Jumbo Mortgage
Rates & Terms | |
|---|---|
Loan amount | $806,500 or up to $1,209,750 |
Estimated starting rate | 6.5% and up |
Repayment term | 5, 7, 15, or 30 years |
Qualifications | |
Credit score | 700-plus |
Maximum loan-to-value ratio | 80% |
43% or lower | |
Down payment | 20% |
Cash reserves | 6 to 12 months |
Qualifying for a jumbo mortgage tends to be more difficult than the average mortgage. Essentially, the lender wants to mitigate as much risk as possible in the event you default on the loan. It’s worth noting, however, that lenders aren’t held to the same FHFA standards with jumbo loans and therefore have leverage when it comes to their necessary requirements.
That said, the stronger your credentials, the better rates and terms you’re likely to get. Also, the larger your down payment and cash reserves, the more likely you are to be approved and have flexibility in regards to necessary qualifications.
Chances are you’ll also have to provide a fair amount of documentation when applying for a jumbo loan. This includes furnishing your tax returns, W-2s, bank statements, etc. to supplement your application.
Pros & Cons of Jumbo Loans
| PROS | CONS |
|---|---|
| Loan amounts offered are larger compared with other mortgage loan types. | It has stricter qualification requirements than most mortgage loans. |
| It has comparable interest rates with conventional mortgages. | Closing costs can be more expensive. |
| Lenders are not constrained by qualification criteria set by government entities. | It’s not as common an offering from lenders as most other real estate loan types. |
Who a Jumbo Loan Is Right For
The need for a jumbo loan will likely only occur if you’re seeking a mortgage that exceeds the CCL in your area. That said, it’s best suited for the following:
- Those who live in a high cost area: Jumbo loans tend to be more common in high-cost-of-living areas since home prices are more expensive overall and frequently surpass the cost of the CLL in that area.
- Borrowers with significant resources: To qualify for a jumbo loan, you must be a strong borrower with ample resources to fall back on in the event of default. Most lenders will expect you to be able to make a large down payment and maintain cash reserves.
- Investors looking to acquire a property: For real estate investors wanting to purchase an investment property, a jumbo loan allows you to get the financing you need outside of a government-backed mortgage.
How to Get a Jumbo Loan
A jumbo loan can typically be facilitated by a bank, credit union, or mortgage company. Each will have varying loan limits, qualification requirements, and loan conditions to consider.
It may be worth seeking a lender that specializes in jumbo loans to ensure that you work with experienced providers that can facilitate the process smoothly, as jumbo loans tend to have heavy paperwork involved. That said, be sure to compare lenders to ensure you get the best deal for your budget.
Alternatives to a Jumbo Loan
If you think a jumbo loan isn’t the right fit for you, there are a few financing options available that may be applicable for your real estate acquisition needs.
- Blanket mortgage: A blanket mortgage might be an option if you’re looking to finance multiple properties under one loan type. With this structure, it’s easier to manage your portfolio with a single payment rather than keeping track of multiple mortgages at once.
- FHA family loan: If you’re looking into financing an investment property, an FHA family loan may be an option. It is backed by the government, is used to assist with the purchase of multifamily housing, and tends to offer favorable rates and terms. You must find a participating lender, however.
- Owner financing: If you can’t find a traditional lender, you may be able to inquire about owner financing with the seller of the property. This would involve making installment payments toward the property in compliance with agreed terms.
- Hard money loan: If you’re looking to fix-and-flip an investment property, a hard money loan can provide you with short-term financing and quick access to funds. This loan is typically considered high risk and generally has high interest rates to compensate. For a list of providers, check out our guide on the best hard money lenders.
Frequently Asked Questions (FAQs)
What constitutes a jumbo loan is that a mortgage exceeds the CLLs set by the FHFA. These loans are used to finance high-value properties for qualified borrowers needing large funding amounts.
Some disadvantages of a jumbo loan include larger down payments, stricter qualification requirements, higher closing costs, and potentially higher interest rates. This is mainly to compensate for the larger loan amount and associated risks of facilitating a jumbo loan.
It depends. Most jumbo loans require a down payment ranging anywhere from 10% to 25% or even higher. That said, the better your qualifications as a borrower, the lower the down payment you’ll likely be required to make.
Bottom Line
A jumbo mortgage can be beneficial for borrowers looking to acquire high-value real estate. Whether it be to purchase a primary residence, vacation home, or investment property, it allows the borrower the opportunity to access financing that exceeds the CLLs set by the FHFA. It often requires that the borrower have strong qualifications and ample resources but can be a great financial solution for those in need of a large mortgage.
