Jumbo Loan
Definition and meaning of Jumbo Loan in real estate.
Jumbo loan is a term for a non-conforming mortgage that exceeds the maximum limit set by the Federal Housing Finance Agency for loans that can be purchased by Fannie Mae or Freddie Mac.
In more detail
Because jumbo loans cannot be sold to government-sponsored enterprises, lenders take on higher risk and enforce stricter underwriting standards. Borrowers must typically have excellent credit scores, low debt-to-income ratios, and large cash reserves to qualify. Down payment requirements are also generally higher than those for conforming loans, often requiring at least ten to twenty percent down.
Interest rates on jumbo loans can be slightly higher or lower than conforming rates, depending on market conditions and the borrower profile.
Key facts
| Category | Mortgages & Financing |
|---|---|
| Also known as | Non-conforming loan |
| Applies to | High-end properties and high-cost real estate markets |
| Watch out for | Stricter underwriting, larger down payments, and higher reserve requirements |
A buyer wants to purchase a home in an expensive coastal city where the sale price is well above average. Because the loan amount exceeds the local conforming limit, the buyer applies for a jumbo loan and provides proof of significant savings and a high credit score.
Frequently asked questions
How are jumbo loan limits determined?
Limits are set annually by the Federal Housing Finance Agency based on changes in average home prices, and they vary by county to account for high-cost areas.
Do jumbo loans require private mortgage insurance?
Yes, if the borrower puts down less than twenty percent, though many jumbo lenders require a minimum twenty percent down payment, which avoids private mortgage insurance entirely.