Jumbo mortgage loans are mortgages for higher-priced properties, and many mortgage lenders offer them. They’re called “jumbo” because they exceed the loan sizes set by Fannie Mae and Freddie Mac, the government-sponsored enterprises that buy loans from lenders.
Below are the basics on jumbo loans, and a directory of loan limits by state.
What are jumbo loans?
Jumbo mortgage loans surpass the conforming loan limit, which is the maximum loan amount subject to guarantee by Fannie Mae and Freddie Mac. For this reason, they’re referred to as nonconforming loans.
In 2021, the conforming loan limit is $548,250 in most counties in the U.S., and $822,375 in higher-cost areas. Any mortgage over these amounts is considered a jumbo loan. It’s important to note that these conforming limits apply only to one-unit properties; multi-unit properties have higher conforming limits also set by Fannie and Freddie.
Homebuyers shopping for a higher-end home or one in a more expensive housing market, such as Hawaii, San Francisco or New York, are more likely to need to take out a jumbo loan.
The amount of a jumbo loan varies by location. A jumbo loan in certain parts of California could be a $1 million loan, for example, while one in Virginia could be $750,000, notes Mat Ishbia, president and CEO of United Wholesale Mortgage in Pontiac, Michigan.
What are typical jumbo loan requirements?
Jumbo loans have different requirements compared to conforming loans. These include:
- Credit score – The minimum credit score required for a jumbo loan depends on the mortgage lender, but is usually at least 700. Conforming loan credit score minimums are typically 620 or 640.
- DTI ratio – When it comes to DTI, the lower the better, especially for a jumbo loan. Many lenders look for no higher than 43 percent.
- Down payment – The minimum down payment on a jumbo loan also varies by lender. This is because there’s less of a secondary market for jumbo loans, and more of them are held in the lender’s portfolio, explains Greg McBride, CFA, Bankrate chief financial analyst. “This can mean a down payment higher than the traditional 20 percent and instead be at 25 percent or 30 percent, but some lenders offer programs that have lower down payment requirements,” McBride says.
Why are jumbo loan limits necessary?
Conforming loan limits are set by the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, the two government-sponsored enterprises (GSEs) that buy a large portion of mortgages made in the U.S. from lenders and resell them on the secondary market to investors. These limits help lenders make more loans available to borrowers, since the lender can now sell them to the GSEs, mitigating risk if the borrower can’t repay. Loans outside of the conforming loan limits, including jumbo loans, are riskier for lenders.
What are jumbo loan rates?
Jumbo loan rates tend to mirror those for conforming loans. Currently, the benchmark 30-year fixed jumbo loan rate is 3.230%, according to Bankrate’s national survey of mortgage lenders.
“The long-held practice was that jumbo rates were higher than conforming loans because they lacked the government guarantee,” McBride says. “However, in the years following the financial crisis we have seen that change as the secondary market for jumbo loans all but disappeared, loan performance was particularly strong relative to smaller conforming loans and additional add-ons were tacked onto conforming loans.”
Rates on jumbo loans are also tied to the credit profile of the borrower, just like any other type of mortgage.
“Credit scores are a critical input in the lending decision,” McBride says. “Lenders may use compensating factors such as higher income or significant assets to offset a deficiency in the credit score, and this tends to be more common in jumbo loans than the smaller conforming and government-backed loans.”
How to shop for a jumbo loan
In the earlier days of the pandemic, some mortgage lenders halted making jumbo loans or set more restrictive requirements as a hedge against risk. Jumbo loans are mostly widely available today, however, and from a variety of lenders. Big banks can be a good option, as well as independent mortgage companies. A mortgage broker can also help you find the right fit.
Find jumbo loan limits by state
- District of Columbia