A jumbo loan is a mortgage larger than the limit the federal government sets for conventional loans
Most mortgages sold to Fannie Mae or Freddie Mac—the government-backed companies that buy loans from banks—have a cap on how much they can be. In 2024, that limit is $766,550 in most of the country, though it's higher in expensive areas like parts of California and New York. A jumbo loan is anything above that threshold.
Because jumbo loans exceed the federal limit, banks can't sell them to Fannie Mae or Freddie Mac. That means the bank keeps the loan on its own books and takes on all the risk if you stop paying. As a result, jumbo loans come with stricter requirements, higher interest rates, and a more demanding approval process than conventional mortgages.
If you're buying an expensive home or refinancing a large mortgage, you'll encounter jumbo loans. Understanding how they differ from standard mortgages helps you know what to expect when you talk to lenders.
Key Takeaways
- A jumbo loan exceeds the federal conforming loan limit, which is $766,550 in most U.S. counties as of 2024, though the limit varies by location.
- Banks keep jumbo loans instead of selling them, so they require larger down payments (often 10 to 20 percent), higher credit scores (usually 700 or above), and proof of substantial savings or assets.
- Interest rates on jumbo loans are typically 0.5 to 1 percent higher than conventional mortgages because the lender bears all the risk.
- The approval process for a jumbo loan takes longer and involves more documentation than a standard mortgage, including detailed financial statements and employment verification.
Why the federal limit exists and what it means for you
Fannie Mae and Freddie Mac were created to make mortgages more stable and affordable by buying loans from banks. When a bank sells a loan to one of these companies, the bank gets its money back when ready and can lend to someone else. This system lets banks offer lower rates because they're not holding the risk.
The federal limit—called the conforming loan limit—exists to keep Fannie Mae and Freddie Mac from taking on too much risk in expensive markets. If you borrow more than that limit, your lender can't pass the loan along, so the bank is stuck with it. That's why jumbo loans feel like a different product entirely: they are.
In high-cost areas like San Francisco, Miami, and parts of the Northeast, the conforming limit is higher—sometimes $1.1 million or more—because homes there cost more. You can find your county's limit on the Federal Housing Finance Agency website, though your lender can tell you when ready.
Down payment, credit score, and savings requirements
Conventional mortgages often allow down payments as low as 3 to 5 percent. Jumbo loans typically require 10 to 20 percent down, and some lenders ask for even more. The larger down payment reduces the lender's risk if the home loses value or you default.
Credit score requirements are stricter too. Most jumbo lenders want a score of 700 or higher, and many prefer 720 or above. A conventional mortgage might be available with a 620 score; a jumbo loan at that score would be nearly impossible to find.
Lenders also look closely at your savings and assets. They want to see that you have cash reserves—often equal to six months or a year of mortgage payments—sitting in the bank. This shows you can handle the payment if your income drops. Some lenders ask for proof of liquid assets (money you can access quickly) equal to the entire loan amount, though that's less common.
Interest rates and how they compare to conventional mortgages
Because the lender keeps all the risk, jumbo loans carry higher interest rates than conventional mortgages. The difference is usually 0.5 to 1 percent, though it can be wider during periods when lenders are cautious about jumbo lending.
That gap matters. On a $1 million jumbo loan at 7 percent instead of 6.5 percent, you'd pay roughly $5,000 more per year in interest. Over a 30-year mortgage, that's $150,000 in additional cost.
The rate you're offered depends on the lender, the size of the loan, your credit score, and how much down payment you're putting down. Shopping with multiple lenders is especially important for jumbo loans because the rate difference between banks can be substantial.
The approval process and documentation you'll need
Jumbo loan approval takes longer than a conventional mortgage—often 45 to 60 days instead of 30. Lenders order more appraisals, verify employment more thoroughly, and dig deeper into your financial history.
You'll need to provide tax returns (usually the last two years), W-2s or proof of self-employment income, recent pay stubs, bank statements, and a detailed list of assets and debts. If you're self-employed or have irregular income, expect to provide additional documentation like profit-and-loss statements or business tax returns.
Some lenders also require a letter from your employer confirming your job title, salary, and how long you've worked there. If you've changed jobs recently, you may need to explain the move. The goal is for the lender to feel confident you'll be able to pay the loan for 30 years.
When a jumbo loan makes sense and when alternatives exist
A jumbo loan is necessary if you're buying a home that costs more than the conforming limit in your area and you don't have enough cash to bring the purchase price down below that threshold. It's also the only option if you're refinancing a mortgage that's already above the limit.
If you're close to the limit, you might consider putting down a larger down payment to bring the loan amount below the conforming limit. That avoids jumbo loan requirements entirely, though it requires more cash upfront. Some buyers also explore portfolio loans—mortgages that banks keep and service themselves, with different (sometimes more flexible) terms than jumbo loans, though these are less common and harder to find.
Another option is a piggyback loan, where you take out a conventional mortgage for up to the conforming limit and a second mortgage for the remainder. This can sometimes be cheaper than a jumbo loan, though it means two monthly payments and two sets of closing costs.
How jumbo loans performed during the 2008 financial crisis and what changed
Jumbo loans were hit hard during the 2008 housing crisis because lenders had kept them on their books and couldn't sell them when the market froze. Many banks stopped offering jumbo loans entirely, and those that did charged very high rates.
Today's jumbo market is more stable, but lenders remain cautious. They're more likely to require larger down payments and higher credit scores than they were before 2008. Some lenders also limit how much they'll lend relative to the home's value, even if you have excellent credit and a large down payment.
This caution is why shopping around matters. Different lenders have different appetite for jumbo loans, and some are more willing to work with borrowers who are slightly below their ideal credit score or down payment threshold.
Frequently Asked Questions
Can I get a jumbo loan with a credit score below 700?
Most jumbo lenders require 700 or higher, and many prefer 720 or above. Some lenders may work with scores in the 680 to 700 range, but you'll face higher rates and stricter requirements. It's worth asking multiple lenders, but expect to pay more for a lower score.
What's the difference between a jumbo loan and a portfolio loan?
Both are kept by the lender instead of sold to Fannie Mae or Freddie Mac. A jumbo loan is defined by exceeding the federal limit; a portfolio loan is defined by the lender's own terms. Portfolio loans may have more flexible requirements but are harder to find and often carry higher rates.
Do I need to put down 20 percent on a jumbo loan?
Most lenders want 10 to 20 percent down, but some ask for more. A few may accept 10 percent if you have excellent credit and substantial savings. The larger your down payment, the better your rate and terms will be.
Why do jumbo loans take longer to close?
Lenders verify more details because they're keeping the loan and bearing all the risk. They order additional appraisals, confirm employment more thoroughly, and review your finances in greater depth. This typically adds 15 to 30 days to the process.
Can I refinance a jumbo loan into a conventional mortgage?
Only if the new loan amount falls below the conforming limit in your area. If you've paid down the principal enough, you might be able to refinance into a conventional mortgage with better rates and terms. If the loan is still above the limit, you'll refinance into another jumbo loan.