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What is a jumbo loan and when do you need one?

Andrew Dehan Troy Segal
Written by
Andrew Dehan,
Edited by
Troy Segal
Published on April 02, 2024 | 9 min read

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Images by GettyImages; Illustration by Hunter Newton/Bankrate

Key takeaways

  • Jumbo loans are large-amount mortgages, generally used to buy more expensive properties.
  • The size of a jumbo varies by geographic location, but it generally means a loan of more than $766,550 in most parts of the U.S. (as of 2024).
  • The interest rates on jumbo loans are different (usually higher) than those on regular, conforming mortgages.
  • Jumbo loans have stricter criteria for borrowers: a higher credit score, larger income/assets, and bigger down payments.

A jumbo loan is a mortgage for an amount that exceeds the standard loan size, as set by the federal government. If you’re buying a mansion — or just a regular home in a highly pricey neighborhood — you’ll need an extra amount of financing to get it.

It’s not just the principal amount, though: Everything on these mortgages can be super-sized. Let’s look at what jumbo loans are, and when you need one.

What is a jumbo loan?

As the name implies, a jumbo loan covers a larger-than-normal loan amount. More specifically, a jumbo loan is any mortgage that exceeds an area’s conforming loan limits, which are set yearly by the Federal Housing and Finance Agency (FHFA).

Many mortgage lenders offer jumbo loans up to $3 million or $5 million. You might be able to find jumbo loans in even higher amounts, especially if you work with a mortgage broker who specializes in them.

Jumbo loans can be used for primary residences, investment properties and vacation homes.

How do jumbo loans work?

Despite their “nonconforming” status, jumbo loans aren’t much different from traditional mortgages when it comes to the way they work. The payment schedules and other details are generally the same. Borrowers can get fixed- or adjustable-rate jumbo mortgages with various term options.

However, the interest rates on jumbo loans often differ from their conforming loan counterparts. Historically, they’ve been higher; however, the gap has closed of late. As of April 1, 2024, the 30-year jumbo rate was 7.06 percent, according to Bankrate’s survey of national lenders, vs. 6.93 percent for the traditional 30-year fixed loan. Part of the reason for this is an increase in guaranteed fees charged on conforming loans to lenders by Fannie Mae and Freddie Mac.

The maximum size of a jumbo loan varies by your mortgage lender and location, as does the exact qualifying guidelines. Because the market for jumbo loans is smaller, you might need to shop around a bit more to find one. It’s usually beneficial to work with a mortgage lender who specializes in them.

Jumbo loans vs. conforming loans

Most loans are conforming loans, meaning they conform to, or follow, specific criteria followed by Fannie Mae and Freddie Mac, the government-sponsored enterprises that buy most U.S. home loans. Jumbo loans do not adhere to these criteria; hence, they fall into the financing category of nonconforming loans.

You’ll have more buying power with a jumbo loan than with a conforming loan, but you’ll pay more in interest since your balance is bigger. To qualify for a jumbo loan, you’ll need a higher credit score — and possibly a higher income, down payment or more assets — than you would for a conforming loan. For example, U.S. Bank calls for a minimum 740 credit score to be considered for a jumbo loan versus 620 for a conforming loan.

Jumbo loan limits

You need a jumbo loan if you want to finance a property that costs more than a certain amount the FHFA sets for your state each year. If a mortgage exceeds the FHFA’s conforming loan limit, market-makers Fannie Mae and Freddie Mac won’t back or purchase it, thus making it a riskier proposition for a lender.

For 2024, the limit for conforming loans for most of the continental U.S. is $766,550. In Hawaii, Alaska and certain counties where median home prices are significantly higher than average, the conforming loan limit goes up, too — as high as $1,149,825.

Because homes that cost above these sums require a jumbo loan, these ceilings are often referred to as “jumbo loan limits” — though technically, they’re the starting points for jumbos.

Loan limits by state

The table below provides state-by-state conforming loan limits for 2024. In many states, the limits vary by county, depending on how high-cost the real estate market is there.

How to qualify for a jumbo loan

Jumbo lenders typically impose stricter underwriting guidelines than conforming mortgage lenders do. Because the loans aren’t backed by Fannie or Freddie, jumbo mortgages pose more risk to the lender. Overall, if you want to take out one of these hefty loans, you will need to make sure your financial profile is very good or excellent.

There are three common hurdles borrowers must clear to get approved for a jumbo loan: income, credit score and cash reserves (for making a down payment).

Jumbo loan income requirements

Yes, it’ll help if you have a large income — and, just as importantly, if you have a low-debt-to-income (DTI) ratio, the percentage of your monthly income that goes to debt payments. If your outgo is a significant part of your incoming — like more than one-third — you might not qualify for a jumbo loan unless your credit score is excellent or you have a sizable amount of reserves or liquid assets.

Jumbo loan credit score

Higher credit scores are needed to qualify for a jumbo versus a conforming loan. You will need, at the very least, a minimum score of 700 (most likely) to qualify for one. “The average is around 740, although I have seen some as low as 660,” says Robert Cohan, president of Carlyle Financial based in San Francisco. “[But] if you’re high-leveraged and you have a low credit score, it’s going to be hard to get a jumbo loan.”

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Keep in mind: Most jumbo loans are conventional loans (offered by private lenders, vs. a government agency). One exception is the VA jumbo loan. Active military or veterans can qualify with a significantly lower credit score, like in the mid-to-low 600s.

Jumbo loan down payment

You may have to make a significant down payment to qualify for the jumbo loan. The down payment on a jumbo loan is typically 10 percent to 20 percent (and sometimes more). “Anything lower than a 10 percent down payment and you’re probably going to pay for it in higher rates,” says Cohan (assuming you can get the loan at all). Be prepared to show enough reserves, or liquid assets, to cover between six and 12 months’ mortgage payments.

Is a jumbo loan right for me?

Jumbos are meant for buyers with a substantial stable income and ample resources. You’ll need strong credit, a low debt-to-income ratio and at least six months of cash reserves to qualify.

Research the conforming loan limits in your region. If the homes you’re interested in buying do not fall within conforming loan guidelines, a jumbo loan might be an appropriate alternative — in fact, your only alternative, if you want to live in a high-cost county.

That said, a jumbo loan is not for you if it means you must stretch your finances to the brink to get one. Or if it means you’ll end up being house broke or house poor, meaning your homeownership costs squeeze out everything else in your budget.

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If you can’t qualify for a jumbo loan — or don’t want one —  you might consider a piggy-back loan arrangement, in which you take out two smaller mortgages, both conforming, instead.

Pros and cons of a jumbo loan

Jumbo loans can help you finance a large home purchase, however, you’ll pay more in interest over time than with a conforming loan. Here are some additional pros and cons:

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Pros

  • Allows you to borrow more than a traditional mortgage
  • Competitive interest rates
  • Opportunity to buy a more expensive home/live in a high-cost region
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Cons

  • A higher credit score is required to qualify, plus a larger annual income
  • Must have cash reserves to cover 6 to 12 months of payments
  • Higher interest rates

There may also be situations in which a jumbo loan loan makes sense. For instance:

  • If you have to live in a more expensive part of the country
  • If you see a good deal on a luxury piece of property
  • If the jumbo loan rates are close to conforming loan rates (why not get more bang for your financing buck)
  • If you have gotten, or expect to soon get, a windfall or big rise in income, so the cash reserve requirement is no problem (real estate isn’t the worst investment in the world)

Jumbo loan FAQ

  • If you would like to take out a jumbo mortgage, you’ll need to make sure your credit is very good to excellent, as a strong credit score is crucial for getting the best rates. Like any home loan, it is worth shopping around with lenders to see who might offer you the best rate. If you can put down a larger down payment — above and beyond the standard 20 percent — it may help you qualify for a lower rate as well.
  • The closing costs for a jumbo loan are similar to its conforming loan counterpart — 2 to 5 percent of the home’s purchase price. But while the percentage is the same, the property’s higher price means you’ll end up paying more in fees. For example, with 2 to 5 percent in closing costs, a loan on a $1 million dollar property could cost $20,000 to $50,000 in closing costs alone. For a $500,000 property, your costs would be half that range.
  • There are reduced tax benefits with a jumbo loan compared to a standard mortgage. For mortgages taken out after Dec. 16, 2017, the IRS allows for deducting home mortgage interest on the first $750,000 of mortgage debt, or $375,000 if you are married and file separate tax returns. So, taking out a jumbo loan could mean you will not be able to write off the entirety of your mortgage interest on federal tax returns each year. There are higher mortgage interest deductions, however, for homeowners whose mortgage was established before December 16, 2017. In that case, mortgage interest up to $1 million or $500,000 for those who are married filing separately, can be deducted on tax returns.
  • Yes, the Department of Veterans Affairs (VA) guarantees (it technically doesn’t offer) jumbo loans. The minimum financial requirements the VA sets are more lax than a conventional jumbo loan: you’ll need a 620 credit score and no cash reserves are required (though lenders may set higher requirements). If you’re a qualified buyer with your full VA entitlement, you may also not need a down payment. Bear in mind, though, that lenders may set their own stricter requirements.
  • You can refinance your jumbo loan, but it may be more difficult than refinancing a conforming loan. That’s largely because lenders have different financial requirements when it comes to jumbo mortgages, potentially limiting the pool of lenders you can work with. On top of that, jumbo loans come with higher closing costs, which makes your break-even period longer than it would with a conforming loan.

Additional reporting by Mia Taylor

Written by
Andrew Dehan Arrow Right Icon
Writer, Home lending
Andrew Dehan writes about real estate and personal finance. His work has been published by Rocket Mortgage, Forbes Advisor and Business Insider. He’s also a poet, musician and nature-lover. He lives in metro Detroit with his wife and children.