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Jumbo Home Loans: Financing for Higher-Priced Properties
Jumbo loans serve borrowers who are financing homes that exceed the conforming loan limits established by Fannie Mae and Freddie Mac. When a loan amount is above those limits, it cannot be sold to the government-sponsored enterprises that purchase most conventional mortgages. Instead, the lender holds the loan or sells it to private investors, which means the lender establishes its own underwriting standards.
A jumbo loan is a mortgage that exceeds the conforming loan limits set by Fannie Mae and Freddie Mac. Because these loans cannot be purchased by those government-sponsored enterprises, they are held in the lender’s portfolio or sold to private investors. This means the lender sets the underwriting guidelines.
Understanding Jumbo Loans
What to know — and who may benefit
Considerations
- Underwriting guidelines are set by the lender, not by Fannie Mae or Freddie Mac, and may vary between lenders
- Qualification may involve a more detailed review of credit, income, reserves, and property value
- Because the lender retains more risk, the requirements may be more stringent than for conforming loans
- Loan amounts are higher, which means the financial commitment is larger over the life of the loan
Who May Benefit
- Borrowers who may want to finance a home that exceeds conforming loan limits
- Homebuyers purchasing higher-priced properties in markets with elevated home values
- Borrowers who may want a portfolio loan held by the lender rather than sold to a GSE
- Homebuyers exploring financing for a primary residence, second home, or investment property at a higher price point
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Calculators to Help You Plan
Frequently Asked Questions
What is a jumbo loan?
A jumbo loan is a mortgage that exceeds the conforming loan limits set by Fannie Mae and Freddie Mac. Because it cannot be purchased by those government-sponsored enterprises, it is held by the lender or sold to a private investor.
How does a jumbo loan differ from a conventional loan?
A conforming conventional loan falls within the loan limits set by Fannie Mae and Freddie Mac and can be sold to those entities. A jumbo loan exceeds those limits and is held by the lender or sold to private investors, which means the lender sets the underwriting guidelines.
What property types qualify for a jumbo loan?
Jumbo loans can be used for primary residences, second homes, and investment properties, depending on the lender’s guidelines. The property must appraise at a value that supports the loan amount.
Can I use a jumbo loan for a second home?
Yes, jumbo loans can be used for second homes depending on the lender’s guidelines. Because the lender sets the rules for jumbo loans, availability and requirements may vary.
What should I ask a loan officer about jumbo loans?
You may want to ask about the lender’s specific underwriting guidelines, what documentation is required, how reserves are calculated, and how the process differs from a conforming loan. A loan officer experienced in jumbo financing can guide you through these questions.
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