Jumbo loans are a type of mortgage used to finance properties that exceed the conforming loan limits set by the Federal Housing Finance Agency (FHFA). These loans are non-conforming, meaning they are not eligible for purchase by Fannie Mae or Freddie Mac. As a result, they typically carry stricter qualification requirements and higher interest rates to compensate for the added risk to lenders. Jumbo loans are often used by high-income earners to purchase luxury properties or homes in high-cost areas where property values exceed standard loan limits.

As of 2024, the conforming loan limit for most counties is $726,200 for a single-family home. In high-cost areas, this limit can go up to $1,089,300. Any loan amount that exceeds these limits is considered a jumbo loan. There is no official maximum loan amount for jumbo loans, but lenders will set their own limits based on factors such as borrower qualifications, property value, and market conditions. Jumbo loans typically require a down payment of 10-20%, although some lenders may offer options with as little as 5% down for highly qualified borrowers.

Interest rates for jumbo loans are generally higher than those for conventional loans, often ranging from 6-7%, depending on the borrower’s credit score, loan-to-value (LTV) ratio, and overall financial profile. Because jumbo loans involve larger amounts of money, lenders are exposed to more risk, and therefore, stricter credit and financial requirements are in place. Borrowers typically need a credit score of at least 700, although some lenders may require higher scores, particularly for larger loan amounts or lower down payments.

To qualify for a jumbo loan, borrowers must demonstrate strong financial stability, including a high credit score, low DTI ratio (usually below 43%), and significant cash reserves. Most lenders will also require several months of cash reserves (often 6-12 months) to ensure the borrower can continue to make payments in the event of financial hardship. Additionally, the underwriting process for jumbo loans tends to be more thorough, requiring extensive documentation of income, assets, and liabilities. Because of these stricter requirements, jumbo loans are best suited for high-net-worth individuals or those purchasing homes in expensive real estate markets.