What is a Jumbo Loan?

A **Jumbo Loan** is a type of mortgage that exceeds the Federal Housing Finance Agency (FHFA) limits for conventional loans, making it suitable for financing high-value properties and luxury homes. Unlike conventional loans, jumbo loans are not eligible for purchase, guarantee, or securitization by Fannie Mae or Freddie Mac. This lack of backing by government-sponsored enterprises means lenders assume more risk, resulting in stricter approval requirements for borrowers. Typically, a strong credit score, low debt-to-income ratio, and substantial documentation of income and assets are necessary to qualify for a jumbo loan. The loan limits vary by region, with most areas having a limit of $766,550, while high-cost areas can have limits up to $1,149,825.

Jumbo loans also come with specific financial considerations. Although they used to have higher interest rates than conventional mortgages, recent trends show that jumbo loan rates are often comparable or even lower. Down payment requirements have also become more flexible, ranging from 10% to 15% of the property’s purchase price. However, borrowers should be aware of the limited tax benefits, as the mortgage interest deduction is capped at $750,000 for new loans taken out after December 14, 2017. Despite these challenges, jumbo loans provide an essential financial tool for high-income earners and those looking to invest in high-value real estate.