What is a Jumbo Loan?
A jumbo loan is a mortgage that exceeds the conforming loan limit established by the Federal Housing Finance Agency (FHFA). Conforming conventional mortgages are originated according to certain guidelines so that they can be purchased by Government Sponsored Enterprises (GSEs) such as Fannie Mae or Freddie Mac in the secondary mortgage market. Selling off existing mortgages allows lenders to maintain sufficient liquidity to keep lending to new homebuyers.
The risk of default is being passed on in the secondary mortgage market. Therefore credit requirements, down payment minimums, and loan limits are in place to minimize this risk. The 2021 loan limit for conforming loans is $548,250. For areas with a higher cost of living, the limit is up to $822,375. If you want to purchase a home that exceeds this limit, you will need to apply for a non-conforming jumbo loan. Jumbo loans are more difficult to qualify for and generally carry higher closing costs and interest rates.
Loan Terms
- Adjustable-Rate or Fixed-Rate
- 15 and 30 year loan terms
- Usually a minimum of 20% down for single-family home financing
Qualifying for a Jumbo Loan
- Approx 700 to 740 credit score (requirement varies based on loan amount and type of property)
- Generally need a Debt-To-Income Ratio of 45% or less (DTI = Monthly Debt Payments ÷ Monthly Gross Income)
- May require you to prove you have enough cash reserves to cover at least one year of expenses
- Steady income – you will usually need to show 2 years of consistent income