What is a Jumbo Loan? Everything You Need to Know

If you're in the market for a home that’s priced above the conforming loan limits, you might have come across the term "jumbo loan." Jumbo loans are a specific type of mortgage used for properties that exceed the limit set by the Federal Housing Finance Agency (FHFA) for conventional loans. While jumbo loans offer access to higher loan amounts, they also come with unique requirements and considerations.

In this post, we’ll dive into everything you need to know about jumbo loans, how they work, and when they might be the right option for you.

1. What is a Jumbo Loan?

A jumbo loan is a type of mortgage that exceeds the conforming loan limits set by the Federal Housing Finance Agency (FHFA). In most parts of the U.S., the conforming loan limit for a single-family home is $726,200 in 2025. Any loan that exceeds this amount is considered a jumbo loan.

These loans are typically used to finance high-value homes in areas where real estate prices are above the national average.

Why it matters:

• Jumbo loans allow borrowers to finance homes that go beyond the limits of conventional loans.
• They are often used in high-cost areas like major metropolitan cities or luxury real estate markets.

2. How Do Jumbo Loans Work?

Jumbo loans work much like standard mortgages, but they come with a few key differences. Since they exceed the conforming loan limit, jumbo loans are not eligible for purchase by Fannie Mae or Freddie Mac, two government-backed entities. As a result, they are considered non-conforming loans.

Because of this, lenders face higher risks when offering jumbo loans, and as such, they typically require stricter qualifications, higher down payments, and possibly higher interest rates than conventional loans.

Why it matters:

• Jumbo loans often require a higher down payment, typically 20% or more.
• Interest rates may be slightly higher than conforming loans due to the additional risk for lenders.
• Lenders often require higher credit scores and more financial documentation.

3. Jumbo Loan Eligibility Requirements

While the requirements for jumbo loans can vary depending on the lender, there are common eligibility standards that most borrowers will need to meet:

• Credit Score: A good credit score is crucial. Most lenders require a minimum score of 700 or higher. The higher your score, the better the interest rate you can qualify for.
• Down Payment: A down payment of at least 20% is typically required for a jumbo loan, although it may vary.
• Debt-to-Income (DTI) Ratio: Lenders will assess your DTI ratio to determine your ability to repay the loan. Most lenders prefer a DTI ratio of 43% or lower.
• Income and Assets: Expect to provide substantial documentation of your income and assets. Lenders want to ensure you have the financial stability to handle a larger mortgage.

Why it matters:

• With higher credit score and down payment requirements, jumbo loans are often suited for financially stable borrowers.
• These stricter criteria make it more difficult for first-time homebuyers or borrowers with limited financial history to qualify.

4. Jumbo Loan vs. Conforming Loan: Key Differences

The primary difference between a jumbo loan and a conforming loan lies in the loan limits. While conforming loans adhere to the limits set by the FHFA, jumbo loans are larger and not backed by government-sponsored entities (GSEs).

Other key differences include:

• Loan Size: Conforming loans have limits that vary by county, with the baseline limit for a single-family home in 2025 being $726,200. Jumbo loans exceed these limits and can go well into the millions.
• Interest Rates: Conforming loans generally come with lower interest rates due to their backing by Fannie Mae or Freddie Mac. Jumbo loans may have slightly higher rates because they are non-conforming and carry more risk for lenders.
• Down Payment: While conforming loans may allow for lower down payments (as low as 3-5% for some buyers), jumbo loans often require larger down payments, typically 20% or more.

Why it matters:

• A jumbo loan might be the right choice if you are buying a high-value home that exceeds the conforming loan limits.
• Conforming loans may be better if your home purchase falls within the limits and you want lower down payment options and potentially lower rates.

5. When Should You Consider a Jumbo Loan?

Jumbo loans are ideal for individuals looking to purchase higher-priced homes or properties in high-demand areas where real estate prices exceed conventional loan limits. Here are a few scenarios when a jumbo loan might be right for you:

• Buying a Luxury Home: If you're buying a luxury property or a home in a high-cost market like New York, San Francisco, or Los Angeles, a jumbo loan is likely your best option.
• Refinancing a High-Value Home: If your home has appreciated significantly or you've made substantial improvements, refinancing with a jumbo loan might be a good option.
• Investment Properties: If you’re purchasing an investment property above the conforming loan limit, a jumbo loan can provide the necessary funding.

Why it matters:

• Jumbo loans allow you to access larger amounts of financing for properties that conventional loans won’t cover.
• If you’re purchasing a high-value home in a competitive real estate market, a jumbo loan might be the only option to secure the property.

6. Pros and Cons of Jumbo Loans

Before deciding if a jumbo loan is right for you, it's important to weigh the advantages and disadvantages.

Pros:

• Access to larger loan amounts for high-value properties.
• Flexible terms that can be customized based on your financial situation.
• Can offer competitive rates in some cases, depending on market conditions.

Cons:

• Stricter eligibility requirements such as higher credit scores and down payments.
• Higher interest rates compared to conforming loans.
• Limited availability depending on the lender and market conditions.

Why it matters:

• Jumbo loans provide greater financing options for high-value properties, but the tradeoff is higher requirements and potential costs. Understanding both sides helps you make an informed decision.

Final Thoughts

A jumbo loan can be a powerful tool for buying a high-value home or refinancing a luxury property. However, it’s important to understand the unique requirements, risks, and benefits before moving forward. If you're considering a jumbo loan in 2025, make sure you’re financially prepared to meet the lender’s criteria and that you're comfortable with the larger loan size and potential higher interest rates.

Ready to Explore Jumbo Loans?

At SouthFork Funding, we specialize in helping homeowners secure the best mortgage options, including jumbo loans. Whether you're purchasing a luxury home or refinancing your current mortgage, our team can guide you through the process. Contact us today to find out if a jumbo loan is right for you!