What Is a Jumbo Mortgage Loan?
- A single loan amount that exceeds the conforming limit
- Currently set at $453,100 for a one-unit property
- Though exceptions apply for properties in high-cost areas
- Aren’t backed by Fannie Mae or Freddie Mac
Let’s start with a definition. A “jumbo loan” is any single loan amount over the conforming loan limit (set by the Federal Housing Finance Agency), which is currently $453,100 for a one-unit property in the contiguous United States. So if your loan amount is $453,101 or higher, your home loan is considered jumbo.
Each November, the FHFA announces the conforming loan limit for the following year, based on annual home price changes from October to October.
If the housing market does well and home prices rise, the conforming limit will go up and so will the minimum loan amount for a jumbo. This is viewed as a good thing because borrowers tend to try to avoid the jumbo realm to receive better loan pricing.
Yes, jumbo mortgage rates tend to be higher than interest rates on conforming mortgages because they can’t be purchased by Fannie Mae and Freddie Mac. Fewer buyers means less liquidity and higher interest rates.
So if you’re in the market to purchase real estate or refinance an existing home mortgage, be sure to keep this key threshold in mind while shopping rates.
Jumbo Loan Limits Vary By Property Type and Region
- It certain high-cost regions of the country
- There are expanded jumbo loan limits
- These loan limits are also higher
- For multi-unit properties like duplexes and triplexes
It should be noted that there are different jumbo loan limits depending on both the number of units on the property, along with where the property is located.
There are also high-cost conforming limits that aren’t jumbo or conforming, but somewhere in between, which I’ll discuss below.
For properties located in the contiguous United States, including D.C and Puerto Rico, jumbo loan limits are as follows:
1-unit property: Greater than $453,100
2-unit property: Greater than $580,150
3-unit property: Greater than $701,250
4-unit property: Greater than $871,450
*In Alaska, Guam, Hawaii, and the U.S. Virgin Islands, jumbo loan limits are even higher.
For example, you can get a home mortgage as large as $1,386,650 for a four-unit property in Honolulu before it is considered jumbo.
As you can see, in some parts of the country, you can get a very large loan without entering into jumbo loan territory. The same goes for multi-unit properties in all 50 states.
Rather importantly, jumbo mortgages cannot be sold to Fannie Mae or Freddie Mac, so outside investors typically buy these nonconforming mortgages in securitized bundles on the secondary market, or lenders simply keep them on their own books (in portfolio).
Along with the larger loan amounts and fewer available investors, jumbo loans tend to carry greater risk for a number of reasons.
They tend to be tied to luxury residences, which are known to be harder to sell in a short amount of time, mainly due to the general lack of wealthy, prospective home buyers out there.
Luxury homes are also more prone to valuation shifts than moderately priced homes during market ups and downs.
Conversely, real estate priced closer to the national median is never short of buyers and sellers.
Jumbo Loans vs. Conforming Loans
- Jumbo loan rates are higher than conforming rates in most cases
- Fewer banks and lenders offer jumbo loan financing
- Underwriting guidelines are often more conservative for jumbos
- Typically need a higher minimum credit score and larger down payment
- Borrowers may try to avoid jumbo status by breaking up loan into first and second mortgage or coming in with bigger down payment
If you currently have a mortgage, or have been shopping for a mortgage, you’ve probably heard plenty about both jumbo loans and conforming loans.
So what’s the difference between the two, you ask? And does it matter?
Well, for starters, a conforming loan is a mortgage that meets the underwriting guidelines (credit, income, assets requirements) of Fannie Mae and Freddie Mac, the government-backed pair that buy and securitize mortgages on the secondary market.
Additionally, the loan amount must be at or below the conforming loan limit to be considered conforming.
The takeaway here is that conforming loans are smaller in size than jumbo loans, as the name implies. That’s pretty much the main point to remember.
While there are several ways a mortgage can earn the distinction of non-conforming, only a large loan amount will make it a jumbo.
And if it is, Fannie and Freddie won’t want anything to do with it, and it will need to be held on the originating bank’s books, or securitized with private capital.
Getting a Jumbo Loan Can Be More Difficult
- Not all banks offer jumbo loans
- Jumbo underwriting guidelines vary by lender
- Higher down payment/credit score requirements may make it harder to qualify
- May need 10%+ for down payment vs. 3% for conforming
- May need 660/680 minimum credit score vs. 620 for conforming
- Higher mortgage rates also common
Qualifying for a jumbo loan can also be much more difficult than qualifying for a conforming loan, as fewer banks and mortgage lenders offer them.
With a smaller number of banks vying for your loan, you will likely be greeted with both a higher interest rate and more financing restrictions.
This all has to do with risk – because conforming loans are guaranteed by Fannie and Freddie (who are government-owned), there’s more demand for them on the secondary mortgage market. After all, they’re essentially guaranteed by the government.
As a result, interest rates will be lower because more buyers means banks can fetch a higher price for their mortgages, and thus offer a lower yield, which corresponds with a lower mortgage rate for Joe Consumer.
Jumbo Loans Tend to Be More Expensive
- Because they aren’t backed by Fannie Mae and Freddie Mac
- The loans aren’t as easy to liquidate and sell to investors on the secondary market
- As such jumbo mortgage rates are generally higher
- But this spread can change over time and may not always be significant
And that means mortgage rates on jumbo loans will be higher – how much higher depends on the market. If investor demand for jumbos is strong, the rate spread may be narrow, and vice versa.
Historically, the spread has only been a quarter to a half percentage point, but it widened to as much as two percentage points during the height of the financial crisis, seeing that nobody wanted to touch anything without an implied government guarantee.
Currently, the spread between conforming and jumbo loans is less than half a percentage point. But it’s not just higher mortgage rates you have to worry about with a jumbo loan.
Because jumbo loans don’t adhere to Fannie and Freddie’s underwriting standards, they don’t come with that sought-after government guarantee. Instead, individual banks and lenders set their own jumbo loan guidelines, which are typically more stringent.
For example, you’ll likely need to come up with a larger down payment (we’re talking 20% and higher in many cases) while maintaining an excellent credit score. Fannie and Freddie accept credit scores as low as 620. Expect a higher minimum credit score for a jumbo, maybe 660 or 680. Plenty of assets are usually a requirement as well.
Your loan program choices may also be more limited when seeking a jumbo, though both fixed-rate and ARM options are generally available.
However, these drawbacks explain why most home buyers attempt to avoid jumbo loan territory, either by putting down more cash at closing or going with a combo loan, thereby keeping the first mortgage at or below the conforming limit.
In any case, be sure to shop around with a large numbers of lenders to ensure you explore all your options, whether your loan is conforming, jumbo, or somewhere in between.
Conforming Jumbo Loans – A Hybrid of Sorts
- Loan amounts above the classic conforming limit
- But within the high-cost loan limits
- Are known as conforming-jumbo loans
- Rates can be lower and underwriting a bit more flexible
Recent legislation has brought about so-called “conforming-jumbo loans,” which are neither jumbo loans or conforming loans, and range between $453,101 and $679,650 for conventional loans, FHA loans, and VA loans. Outside the contiguous United States, this number rises to $721,050 for a one-unit property.
They are also known as “high balance mortgages,” but are only found in the more expensive housing markets nationwide. In the County of Los Angeles, you can get a loan up to $679,650 without it being considered jumbo.
Meanwhile, counties with lower home values have a conforming limit set at the standard $453,100. For example, Phoenix, Arizona doesn’t have a high-cost limit because home prices there don’t warrant it. The same is true in Chicago and Miami.
This matters because conforming jumbos will often be only slightly more expensive to finance than a conforming loan, but a bit cheaper than a jumbo loan. That means you might still have access to the low rates available.
As you can see from the image below, we might see a tight range of rates that slowly inch higher in each category. They typically carry interest rates closer to those of conforming loans, with perhaps a slight premium.
Importantly, these hybrid loans are still backed by Fannie Mae, Freddie Mac, and the FHA, meaning more lenders offer them, whereas only certain lenders will provide jumbo financing.
For example, your purchase price can be as high as $849,500 in Los Angeles if you put down 20%. That keeps the loan amount just below the limit.
Jumbo Mortgage Rates Are Generally Higher
- While rate spreads do vary over time
- You might expect jumbo mortgage rates
- To price around .25% to .50% above
- A comparable rate for a conforming loan
Because of the associated risks mentioned above, jumbo mortgage loans tend to carry slightly higher mortgage rates, although not necessarily by that much. The difference may only be .25% – .50% higher, or borrowers may just lose out on any lender credit offered for a conforming loan amount (this translates to higher closing costs).
As seen in the illustration, if a conforming 30-year fixed loan (non-jumbo) is going for 3.5%, you might expect to pay 3.75% for a comparable jumbo mortgage. While that might not seem like a lot, it can boost the monthly payment quite a bit due to the large loan amount.
On a $800,000 loan, we’re talking about a $113 difference each month. Perhaps more importantly, it increases the total amount of interest paid by nearly $41,000 over the life of the loan. Grab a mortgage calculator and play with the numbers to compare scenarios.
You might find a particular jumbo lender whose ARM rates are much more competitive than their fixed rates, or vice versa. So certainly take the time to compare mortgage offerings from bank to bank.
However, it is much more difficult for borrowers to find zero-down jumbo mortgages post-crisis. Most lenders back in the early 2000s could provide 100% financing on deals up to around $1.5 million!
Keep in mind that most jumbo lenders have loan amount limits as well, which usually drop as the loan-to-value (LTV) or combined-loan-to-value (CLTV) gets closer to 100% financing.
For example, you may be limited to $1.5 million at 70% LTV, but able to borrow $2 million at 80% LTV. If your LTV is below 65%, a loan as large as $3 million may be possible. Of course, these are just some examples, guidelines will vary by lender.
These LTVs will move even lower if the property isn’t your primary residence.
Additionally, a good to excellent credit score is often a requirement to obtain a jumbo loan. If you have bad credit, it might still be possible, but your mortgage rate could be a lot higher. And other restrictions may apply.
You may also be required to document a larger amount of cash reserves (in your savings account) to prove you can pay the loan back, and/or be subjected to lower maximum debt-to-income ratios. And if refinancing, the more home equity the better to ensure you qualify.
The takeaway is that jumbo lending can be a lot more rigid relative to conforming mortgages.
Super Jumbo Loans – The Really Big Ones
- It’s a subjective term
- Used to be a loan amount above $650,000
- Now it might align with a loan amount beyond the high-cost limit
- Though it probably varies by region and company
While there might be some argument, a true “super jumbo loan” is probably any loan amount above the high-cost limit for the county, ranging up to $20 million or higher.
This term is certainly relative, depending on the state in which the overzealous loan officer resides. I suppose it can vary based on where you live and what you’re used to seeing.
When I worked in the business, a super jumbo was any loan amount over $650,000…
Tip: You can break up your loan into a first and second mortgage to avoid paying more for a jumbo loan, keeping the first below the conforming loan limit. Just make sure the combined rate is cheaper than what it would be otherwise.
Jumbo Home Loans After the Housing Crisis
- It was very difficult to obtain a jumbo loan after the mortgage crisis
- Because private lenders were very conservative
- And the secondary market for such loans completely locked up
- But now it’s business as usual again
For a period of time after the mortgage crisis took hold, jumbo mortgage rates were quite a bit higher than conforming rates, and it was much more difficult to obtain financing for jumbo loans than it had been.
This was mainly because the secondary market for jumbo mortgages, or really any mortgages not backed by the government (FHA loans) or Fannie/Freddie, had simply dried up. As a result, financing those types of loans came at a premium.
Today, now that the housing market has largely recovered, jumbo loans are a lot easier to obtain and pricing is quite favorable. In fact, it’s possible to secure a comparable rate or even lower rate than a conforming loan.
Many investment banks offer very competitive jumbo rates to their private banking clientele that can rival conforming rates. Additionally, high net-worth individuals can take advantage of pricing specials if they have a large amount of assets with a certain depository.
In other words, don’t assume a jumbo will cost more – while the loan amount might be high, the mortgage rate can be quite low. And today jumbo loan requirements are quite flexible.
However, if you’re looking to save a little money and broaden your loan options, consider putting down some more money (or lower your maximum purchase price) if you happen to be close to the conforming/jumbo threshold. It might just make life a little easier, and lead to a lower mortgage payment.
The same is true for existing homeowners looking for the lowest refinance rates. If you can up your home equity a bit before refinancing, it might be enough to avoid a jumbo loan. An amortization calculator will let you see when your existing loan balance will fall below this key limit.
Of course, if jumbo rates aren’t much more expensive, it might not be worth waiting for your loan balance to go down and/or your home value to go up. And you won’t want to miss out on a low rate if it’s here today and gone tomorrow!
Jumbo Mortgage FAQ
How much is a jumbo mortgage?
Any loan amount above $453,100 for a one-unit property in the contiguous United States, including D.C. and Puerto Rico. There are higher limits for multi-unit properties and for properties in Alaska, Guam, Hawaii, and the U.S. Virgin Islands. See top of page for all the numbers.
How much is a jumbo loan in California? Or any other state.
In my home state, and more specifically, city of Los Angeles, it starts above $679,650. However, it varies by county, so some areas of California start at just above $453,100. Check this list to see where your county stands. It’s not a state-based calculation, so make sure you check the county!
What types of jumbo mortgages are available?
Like other types of home loans, you can get anything from adjustable-rate mortgages to 20-year fixed mortgages and everything in between. You might even be able to get your hands on something conforming mortgage lenders don’t offer. So you shouldn’t be limited in this department.
How hard is it to get a jumbo loan?
As noted, it was very difficult post-mortgage crisis to even find a lender willing to offer them. But it has since gotten much, much easier. And today there are plenty of options from all types of different lenders. In fact, some lenders will now offer a jumbo with just five percent down!
However, I would still say qualifying is a bit more difficult than it is for conforming loans, especially if we’re talking about an investment property. Often you’ll need a larger down payment and a strong balance sheet (healthy amount of assets and solid income) to get approved. Don’t be deterred though!
Can I get a jumbo loan with bad credit?
Maybe, but typically minimum credit scoring requirements are a lot higher, and your options will be more plentiful if your FICO scores are 700+. If you are able to obtain financing with a lower score, you’ll likely pay the price in the way of a higher mortgage rate. And you probably won’t want your mortgage payment to be any higher than it already is.
Do jumbo loans require mortgage insurance?
It depends. If the LTV is above 80% and the lender requires it then yes. If the LTV is below 80% or the lender doesn’t require it, then no. Often it isn’t required because the minimum down payment will be at least 20%. If the LTV is above 80% and it’s not explicitly charged, you could argue that it’s built into the higher mortgage rate anyway.
What is the minimum down payment on a jumbo loan?
Some aggressive lenders are now only asking for 5% down, though you’re more likely to see a down payment requirement of at least 10%, if not 20%. But if you shop around you can find a lot of flexible jumbo loan options these days.