A jumbo home loan is a type of mortgage loan that exceeds the limits set by the Federal Housing Finance Agency (FHFA) for conforming loans. Conforming loans are mortgage loans that meet specific criteria established by Fannie Mae and Freddie Mac, the government-sponsored enterprises that purchase and guarantee these loans in the secondary mortgage market. The FHFA sets the limits for conforming loans based on the home prices in a specific area, and these limits are reviewed annually.

• The current loan limit for conforming loans in most areas of the United States is $726,200, but it can vary depending on the location. Any loan amount that exceeds this limit is considered a high balance or jumbo loan depending on the region. Jumbo loans are specifically designed to finance more expensive homes and accommodate borrowers who need to borrow larger amounts of money.

• Jumbo loans are not backed by government-sponsored entities like Fannie Mae or Freddie Mac, which means they are subject to different rules and regulations. As a result, borrowers should carefully consider their financial situation and consult with a qualified mortgage professional before applying for a jumbo home loan.

• Due to the higher loan amounts, jumbo loans pose a greater risk for lenders. As a result, lenders often impose stricter requirements for borrowers seeking jumbo loans. These requirements typically include higher credit score standards, more rigorous income verification, and stricter debt-to-income ratio thresholds compared to conforming loans. Lenders want to ensure that borrowers have a strong financial profile and the ability to handle larger loan amounts.

• In addition to stricter requirements, jumbo loans generally come with higher interest rates compared to conforming loans. The increased interest rate compensates lenders for the higher risk associated with jumbo loans. Borrowers should be prepared for potentially higher monthly mortgage payments due to the higher interest rate.

• Jumbo loans may require a larger down payment. While conforming loans often allow borrowers to put down as little as 3% to 5% of the home’s purchase price, jumbo loans typically require a larger initial investment. Lenders may ask for a down payment of 20% or more to mitigate the risk associated with financing a higher-priced property.

• It’s important for borrowers considering a jumbo loan to carefully evaluate their financial situation and ensure they meet the stricter requirements and are comfortable with the potentially higher costs involved. Working with a knowledgeable lender experienced in jumbo loans can help borrowers navigate the process and understand the specific terms and conditions associated with these types of loans.

A jumbo home loan is a viable option for borrowers who need to borrow more money than the conforming loan limits allow and are willing to meet the higher requirements and pay the higher costs associated with jumbo loans.  Because jumbo home loans exceed the loan limits set by the FHFA for conforming loans and they are intended for financing more expensive homes, they  often have stricter requirements for credit score, income, and debt-to-income ratio. They also tend to carry higher interest rates and may require a larger down payment compared to conforming loans.