Loan Basics

What Is a Jumbo Loan?

A jumbo loan, or a jumbo mortgage, is another name for a "non-conforming" mortgage loan. Consumers who use jumbo loans borrow an amount greater than the conforming mortgage loan limit that is established by the Federal Housing Finance Agency (FHFA), the government authority tasked with making sure there's enough money in the banking system for Americans to borrow for the purpose of buying houses. In other words, it is what it sounds like: a really big loan.

What are the jumbo loan limits in 2018?

The jumbo loan size limit for a one-unit home is $453,100 in most areas of the U.S for 2018. That is an increase from the jumbo loan limit of $424,100 in 2017. If your loan amount is $453,100 or higher, then your home loan is considered a jumbo loan. The jumbo loan size limit can go higher in certain high-priced markets based on the Federal Housing Finance Agency (FHFA) map. The new loan limit for a one-unit home in most high-cost areas will be $679,650—or 150% of $453,100.

When did jumbo loans start?

Jumbo loans were created by Congress in 1938 when Fannie Mae was established and in 1970 when Freddie Mac was created. A jumbo loan is a mortgage that a lender offers because it doesn't "conform" to the maximum loan limits from Fannie Mae and Freddie Mac, which buy mortgages from lenders, which in turn provides them with the liquidity (or money) they need to offer more mortgages.

Why get a jumbo loan?

You may need to get a jumbo loan when you need to finance a higher priced home or a property in aggressive real estate markets. A jumbo loan allows you to borrow $453,100 or more to purchase a single family home or one-unit property desired, based on 2018 limits. Before applying for a jumbo loan, be sure to shop around to find the best jumbo loan rate. Finding the best rate in addition to finding the best service can be a big advantage to securing a good loan.

What are the jumbo loan requirements?

When it comes to jumbo loans, lenders require that qualifying borrowers satisfy specific criteria, which can vary based on the lender.Here are some of those typical jumbo loan conditions:

  • Down payment between 15-30% of the total cost of the home purchase
  • FICO® Score* of 720 or higher, while some lenders require a credit score of 760 or higher
  • Debt-to-income ratio ceiling of 45% or less
  • Borrowers have between 6-to-12 months worth of payments available
  • Home appraisal that supports the purchase price of the home and the mortgage the borrower wants

What is the maximum amount of a non-jumbo loan?

Non-jumbo loans, aka conforming loans, top out at $453,100 in 2018, compared to $424,100 in 2017. Many lenders offer the same mortgage loans for a jumbo loan that they do for conforming loans such as fixed-rate loans, interest-only home loans, and adjustable rate mortgage loans.

Most jumbo loan lenders have a limit on the loan amount for a home which is known as the loan-to-value (LTV) or combined-loan-to-value (CLTV) limit. The closer that the loan-to-value total is to 100%, the less likely it is that the lender will approve the loan. These loan-to-value limits can vary by lender.

What are super jumbo loans?

A super-jumbo loan is an even bigger jumbo loan. Loan amounts for them are above $679,650, for 2018, and can range up to $20 million or higher. Lenders may have different criteria when it comes to approving a super jumbo mortgage, based on internal investment guidelines.

Why avoid a jumbo loan?

Borrowers may want to avoid jumbo loans because they can be hard to get, due to new requirements and regulations. Here are other concerns to consider before applying for a jumbo loan:

  • It is a higher risk loan and not as many lenders offer them.
  • Jumbo loans can carry higher interest rates than conforming loans.
  • A property appraisal must support the purchase price of the home.
  • Jumbo loans can require a larger down payment.

What is considered a jumbo loan in your area?

The FHFA sets the conforming loan limits each year and those amounts can vary depending on where you live or where you intend to purchase a home. There are 3,235 counties in the United States—counting Alaska's boroughs, Louisiana's parishes and the District of Columbia as counties, and excluding Guam, the Virgin Islands, and Puerto Rico.

Here is a snapshot of the jumbo loan breakdown for 2018:

  • In 93.1% of U.S. counties, a jumbo loan is defined as a mortgage of more than $453,100 for a single family home or one-unit property (townhome).
  • In 3.2% of counties, a jumbo loan is a mortgage over $679,650. These counties could be considered areas that are highest-cost housing markets, such as Los Angeles, New York City and San Francisco.
  • In 3.6% of counties, jumbo loans can start somewhere between $454,200 and $672,750. These housing markets have higher prices, but not as high as San Francisco. An example is Denver County, Colorado, where jumbo mortgages are loans higher than $529,00.
  • Hawaii has two counties with jumbo loan starting at $713,000 and higher.

Maximum Conforming Loan Amounts for 2018

UnitsContiguous States, District of Columbia, and Puerto RicoAlaska, Guam, Hawaii, and the U.S. Virgin Islands

Note: Number of units indicates how many separate residences are included in the property. For example, a house or townhouse is one, duplex is two and triplex are three.

Maximum Conforming Loan Amounts for High-Cost Areas for 2018

UnitsContiguous States, District of Columbia+Alaska, Guam, Hawaii, and the U.S. Virgin Islands

+A number of other states and Puerto Rico do not have any high-cost areas in 2018. Source: FHFA