What is a Jumbo Loan? A Primer on Requirements, Lenders & Limits

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What is a jumbo loan? Any time a loan amount exceeds the conventional loan limit set by Fannie Mae/Freddie Mac for a county, it is considered a jumbo loan. The current conforming loan limit for single family homes is $417,000 in most states and $625,500 in certain high-cost areas.

Because jumbo loans exceed the normal thresholds and therefore aren’t backed by federal agencies the same way conventional mortgages are, lenders inherently take on more risk when they extend them. In order to qualify, applicants typically will need to provide proof of income, an impeccable credit score (usually in the 700-720 range), a certain debt-to-income ratio, and the ability to pay a relatively high down payment.

Related: USDA Rural Development Loan: The 100% Financing Loan That’s Not “Just for Farmers”

Although plenty of lenders do offer jumbo loans, they are not as easy to get as they once were. By August 2007, many lenders were scared away from the jumbo loan market, and although they have gradually returned, requirements have become stricter.

Requirements also vary from lender to lender — while some specify that these loans may only be used for primary residences, others will extend jumbo loans to investment property or vacation home purchases. For this reason, it is important to shop around and compare when looking at jumbo loans.

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What is a Jumbo Loan? Bigger Properties Require Bigger Loans

Jumbo loans are typically used when someone wants to purchase or refinance a luxury home, often in a competitive market, that requires a loan amount above the conventional loan limits for the county the property is in. Jumbo loans typically will have slightly higher interest rates and down payment requirements (usually at least 20 percent for a purchase).

Jumbo Loans vs. Super Jumbo Loans

Super jumbo loans are simply loans that exceed the amount of jumbo loans — although that threshold varies from lender to lender. Some lenders constitute a loan as a “super jumbo loan” if it is above $1 million, while others may use super jumbo loans to lend between $2 million and $20 million or above.

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Related: What is a VA Loan and Why Should I Consider Using One?

Jumbo Loan Limits

Because the conventional loan limits change each year, the jumbo loan limits also change accordingly. Each year, Fannie Mae (FNMA) and Freddie Mac (FHLMC) set the loan limits by county for the “conventional loan limit” that they will loan money at. Any loan over this conventional loan limit is considered a jumbo loan. While loans of this size were negatively affected by the subprime housing crisis, they’ve seen a resurgence in recent years, largely due to banks seeing them as a “sweet spot” niche. Because most clients asking for these loans are wealthy and likely have existing relationships with the bank, lenders increasingly see these loans as fairly low risk options.

Still wondering “what is a jumbo loan?” 

Ask all your jumbo loan related questions below, and we’ll do our best to help you out!

About Author

Joshua Dorkin

Joshua Dorkin (@jrdorkin, Google+) founded BiggerPockets.com when he saw a need for free, trustworthy information about real estate investing online. Over the past 12 years, Josh has grown the site from self-funded hobby to full-time job and passion. Today, BiggerPockets brings together over 600,000 members, housing the world’s largest library of real estate content, iTunes’ #1 real estate podcast, and an array of analysis tools, all geared toward helping users succeed.

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