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What is a jumbo loan and when do you need one?

Key takeaways

  • Jumbo loans come in larger amounts, typically for more expensive properties.

  • The size of a jumbo loan varies by geographic location, but is generally more than $766,550 in most parts of the U.S., and can be as high as $5 million.

  • The interest rates on jumbo loans are different (usually higher) than those on regular, conforming mortgages.

  • Jumbo loans have stricter underwriting guidelines, such as higher credit score, income/assets and down payment requirements.

A jumbo loan is a mortgage for an amount that exceeds the loan size limits set by the federal government. If you’re buying a mansion — or just a regular home in a high-priced area like Silicon Valley — you might need a jumbo loan.

What is a jumbo loan?

As the name implies, a jumbo loan covers a larger-than-normal loan amount. More specifically, a jumbo loan is any mortgage that exceeds an area’s conforming loan limits, which are set yearly by the Federal Housing and Finance Agency (FHFA). Jumbo loans can be used for primary homes, investment properties and vacation homes.

Many mortgage lenders offer jumbo loans up to $3 million or $5 million. You might be able to find jumbo loans in even higher amounts, especially if you work with a mortgage broker who specializes in them.

How do jumbo loans work?

Jumbo loans aren’t much different from traditional mortgages. The payment schedules and other details are generally the same. Borrowers can get fixed- or adjustable-rate jumbo mortgages with various term options.

The interest rates on jumbo loans often differ from conforming loan rates, too. Historically, jumbo interest rates have been higher than their conforming loan counterparts. However, as of October 25, 2023, the 30-year jumbo rate was 7.72 percent according to Bankrate’s survey of national lenders, with the conforming 30-year fixed at 8.01 percent. Part of the reason for this is an increase in guaranteed fees charged on conforming loans to lenders by Fannie Mae and Freddie Mac.

The maximum size of a jumbo loan varies by your mortgage lender and location, as does the exact qualifying guidelines. Because the market for jumbo loans is smaller, you might need to shop around a bit more to find a mortgage lender offering one. It’s usually beneficial to work directly with a mortgage lender who specializes in them.

Jumbo loans vs. conforming loans

Most loans are conforming loans, meaning they conform to, or follow, specific criteria followed by mortgage guarantors Fannie Mae and Freddie Mac, the government-sponsored enterprises that buy most U.S. home loans. Jumbo loans do not adhere to these criteria; hence, they’re a type of non-conforming loan.

You’ll have more buying power with a jumbo loan than with a conforming loan, but you’ll pay more in interest since your balance is bigger. To qualify for a jumbo loan, you’ll need a higher credit score — and possibly a higher income, down payment or more assets — than you would for a conforming loan.

For example, one mortgage lender Bankrate reviewed calls for a minimum 680 credit score to be considered for a jumbo loan versus 620 for a conforming loan. Another mortgage lender asks for a 700 minimum score for a jumbo loan (again, vs. 620 for a conforming loan). Overall, if you want to take out one of these hefty loans, you will need to make sure your credit is very good or excellent.

Jumbo loan limits

You need a jumbo loan if you want to finance a property that costs more than a certain amount the FHFA sets for your state each year. This is referred to as a “conforming loan limit” and it can impact how much a lender will let you borrow. If a mortgage exceeds the FHFA’s conforming loan limit, market-makers Freddie Mac and Fannie Mae won’t back or purchase it, thus making it a riskier proposition for a lender.

For 2024, the limit for conforming loans for most of the continental U.S. is $766,550. In Hawaii, Alaska and certain counties where median home prices are significantly higher than average, the conforming loan limit goes up, too — as high as $1,149,825.

Loan limits by state

The table below provides state-by-state conforming loan limits for 2024. In many states, the limits vary by county, depending on how high-cost the real estate market is there.

  • Loan limits by state

How to qualify for a jumbo loan

Jumbo lenders typically impose stricter underwriting guidelines than conforming mortgage lenders do. Because the loans aren’t backed by Fannie or Freddie, jumbo mortgages pose more risk to the lender.

There are three common hurdles borrowers must clear to get approved for a jumbo loan: income, credit score and cash reserves (for making a down payment).

Jumbo loan income requirements

Yes, it’ll help if you have a large income — and, just as importantly, if you have a low-debt-to-income (DTI) ratio, the percentage of your monthly income that goes to debt payments. If your outgo is a significant part of your incoming — like more than one-third — you might not qualify for a jumbo loan unless your credit score is excellent or you have a sizable amount of reserves or liquid assets.

Jumbo loan credit score

Higher credit scores are needed to qualify for a jumbo versus a conforming loan. You will need, at the very least, a minimum score of 700 (most likely) to qualify for one. “The average is around 740, although I have seen some as low as 660,” says Robert Cohan, president of Carlyle Financial based in San Francisco. “[But] if you’re high-leveraged and you have a low credit score, it’s going to be hard to get a jumbo loan.”

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Keep in mind:Most jumbo loans are conventional loans (offered by private lenders, vs. a government agency). One exception is the VA jumbo loan. Active military or veterans can qualify with a significantly lower credit score, like in the mid-to-low 600s.

Jumbo loan down payment

You may have to make a significant down payment to qualify for the jumbo loan. The down payment on a jumbo loan is typically 10 percent to 20 percent (and sometimes more). “Anything lower than a 10 percent down payment and you’re probably going to pay for it in higher rates,” says Cohan (assuming you can get the loan at all). Be prepared to show enough reserves, or liquid assets, to cover between six and 12 months’ mortgage payments.

Pros and cons of a jumbo loan

Jumbo loans help you finance a large home purchase, however, you’ll pay more in interest over time than with a conforming loan. Here are some additional pros and cons:

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Green circle with a checkmark inside

Pros

  • Allows you to borrow more than a traditional mortgage

  • Competitive interest rates

  • Opportunity to buy a more expensive home

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Red circle with an X inside

Cons

  • A higher credit score is required to qualify

  • A larger annual income may be needed

  • Must have cash reserves to cover 6 to 12 months of payments

Is a jumbo loan right for me?

Jumbos are meant for buyers with a substantial stable income and ample resources. You’ll need strong credit, a low debt-to-income ratio and at least six months of cash reserves to qualify.

Research the conforming loan limits in your region. If the homes you’re interested in buying do not fall within conforming loan guidelines, a jumbo loan might be an appropriate alternative — in fact, your only alternative, if you want to live in a high-cost region. That said, a jumbo loan is not for you if it means you must stretch your financial limits to the brink.

Jumbo loan FAQ

  • How do I get the best jumbo mortgage rate?

    If you would like to take out a jumbo mortgage, you’ll need to make sure your credit is very good to excellent, as a strong credit score is crucial for getting the best rates. Like any home loan, it is worth shopping around with lenders to see who might offer you the best rate. If you can put down a larger down payment — above and beyond the standard 20 percent — it may help you qualify for a lower rate as well.

  • Are there additional costs or fees associated with jumbo loans?

    The closing costs for a jumbo loan are similar to its conforming loan counterpart — 2 to 5 percent of the home’s purchase price. While the percentage is the same, because a jumbo loan is for a more expensive property, you’ll end up paying more in fees. For example, with 2 to 5 percent in closing costs, a loan on a $1 million dollar property could cost $20,000 to $50,000 in closing costs alone. For a $500,000 property, your costs would be half that range.

  • Does the VA offer jumbo loans?

    The Department of Veterans Affairs (VA) guarantees jumbo loans. In fact, the VA does not set loan limits at all. Instead, limits are set by lenders who originate VA loans. The minimum financial requirements the VA sets are more lax than a conventional jumbo loan: you’ll need a 620 credit score and no cash reserves are required (though lenders may set higher requirements). If you’re a qualified buyer with your full VA entitlement, you may also not need a down payment.

  • Can I refinance an existing jumbo loan to take advantage of lower interest rates?

    You can refinance your jumbo loan, but it may be more difficult than refinancing a conforming loan. That’s largely because lenders have different financial requirements when it comes to jumbo mortgages, potentially limiting the pool of lenders you can work with. On top of that, jumbo loans come with higher closing costs, which makes your break-even period longer than it would with a conforming loan.

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