Definition
Jumbo loan
A jumbo loan is a mortgage larger than the conforming loan limit for its county, so Fannie Mae and Freddie Mac cannot buy it. Lenders keep jumbo loans or sell them privately, which means each lender sets its own standards for credit score, down payment, debt-to-income and cash reserves.
Because no agency backs them, jumbo loans carry more risk for the lender, and the requirements reflect it. Larger down payments, higher credit scores, stricter debt-to-income limits and several months of reserves are common. Some lenders require two appraisals on high-value properties. Rates can be higher or lower than conforming rates depending on the lender and the market.
Worked example. A buyer is purchasing a $1,500,000 home with 20% down, so the loan is $1,200,000. In a county where that exceeds the conforming limit, it is a jumbo loan. At an illustrative 7% over 30 years, principal and interest are about $7,984 a month. If the lender requires 12 months of reserves on that housing payment plus taxes and insurance, the buyer needs well over $100,000 in liquid assets after the down payment and closing costs.
An alternative some buyers use is a piggyback structure: a conforming first mortgage at the limit plus a second mortgage or HELOC for the rest. Whether that is better depends on the blended rate and closing costs. The jumbo loan calculator compares the loan with the baseline limit and estimates the payment.
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FAQ · 2 questions
Questions about Jumbo loan
How much down payment do I need for a jumbo loan?
It varies by lender, but jumbo programs often expect more than conforming loans, commonly 10% to 20% or more. Some lenders allow less with strong credit and reserves.
Are jumbo loan rates always higher?
Not always. Jumbo pricing depends on each lender's appetite and funding costs, so jumbo rates are sometimes close to or even below conforming rates. Compare actual quotes.
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