A jumbo loan, also known as a jumbo mortgage, is a home loan that’s bigger than the conforming loan limits set by Fannie Mae and Freddie Mac, two government-sponsored enterprises. Unlike conventional mortgages, a jumbo loan is not eligible to be purchased, guaranteed or securitized. These loans are designed to finance luxury properties and homes in highly competitive local real estate markets. Jumbo loans come with unique underwriting requirements and tax implications. Another word for these loans is non-conforming mortgages. They’re considered riskier for lenders because these loans are not guaranteed by Fannie Mae and Freddie Mac, meaning the lender is not protected from losses if a borrower defaults. 

As house prices rise as part of the United States housing bubble, there was a large increase in the number of jumbo loan applicants. Many of these new loans were 40- to 50-year amortization, or had an interest-only option, similar to subprime loans. This means the borrower would pay back the loan over a longer period of time, or can defer any repayment of principal for a few years (this also increases the total amount to be paid back). When 2007 hit, prices fell and the number of foreclosures started to rise, which in turn made lenders turn away from providing jumbo loan mortgages. 

As of 2018, the limits on jumbo loans are $453,100 in all states except for Alaska, Guam, Hawaii, and the U.S. Virgin islands where the limit is $679,650. The conforming limit is higher in countries with higher home prices. The maximum loan amount does vary by lender. Borrowers can get fixed- or adjustable-rate jumbo loan mortgages with various loan options. These mortgages can be used for primary homes or investment properties and vacation homes. 

Three common hurdles that borrowers must clear to be considered for a jumbo loan are larger income, higher credit scores, and greater reserves. Some lenders will approve borrowers in the 680-700 range, while others have a minimum credit score of 720. A great benefit to jumbo loans is being able to go outside of the Fannie Mae and Freddie Mac limitations. 

The rates on jumbo loans fluctuate and can be either higher or lower than the conforming mortgage rate. In many cases, they’re actually lower than the conforming loan rates. Even though it’s called jumbo, that doesn’t necessarily mean the loan has to be more than seven digits. A loan amount of even a dollar more than the limit for your country can put it into jumbo loan status. 

Should you take out a jumbo loan? This depends on your assets, your credit score, and the value of the property that you’re interested in buying. These loans are a great way to finance property. Instead of getting more than one conforming loan to finance a home, the convenient jumbo option takes care of that need. It can be a great fit for home buyers who are in a strong financial position and want to secure a large loan. Lenders can vary on the typical 20 percent down payment for a jumbo loan. Some can have a minimum down payment of 15, 20 or even 30 percent for one.