A jumbo loan, or jumbo mortgage, is a financing structure that is typically used to purchase larger properties or luxury homes in high-end real estate markets. These loans exceed the limits set by the Federal Housing Finance Agency, and therefore, can’t be guaranteed or securitized by government-backed enterprises like Fannie Mae or Freddie Mac.Apply Online Today!
What is a jumbo loan?
Taking out a mortgage is a great way to build wealth and invest in your future, but there are some limits to the amount you can borrow. If you try to finance the purchase of a $1 million home, for example, you’ll quickly find out that conforming mortgages won’t apply. In order to achieve those homeownership dreams, you might have to apply for a jumbo loan.
For typical home loans to be approved, the amount of financing cannot exceed the loan limits set by the Federal Housing Finance Agency. These limits are put in place to create liquidity and stability in the housing market and make mortgages available to a wider range of borrowers. As of 2022, the FHFA mortgage limit is $647,200.
When a borrower’s mortgage surpasses the FHFA’s caps, perhaps for a $1 million home, the standard mortgage structure no longer applies. These home loans are known as non-conforming jumbo mortgages and are usually taken out to finance the purchase of a larger home. The credit risk taken on by lenders who issue jumbo loans, in addition to the sheer amount of financing provided, means the threshold for approval is higher than conforming loans. Among other conditions, securing a jumbo loan typically requires an excellent credit score, few ongoing debts and lots of money in the bank.
For a standard home loan, lenders can benefit from the security provided by the U.S. government. Organizations like Fannie Mae reduce some of the risk associated with lending, as well as offer the ability to resell loans on the secondary market. These quasi government guarantees help stabilize the real estate market, keep the cost of borrowing money low and work to maintain a healthy economy. These protections fall away when a loan is designated as “non-conforming.” This distinction fundamentally changes the way lenders view mortgage applications and carries heavy implications throughout the mortgage process.