What Is a Jumbo Loan?

Understanding Guidelines, Benefits & Drawbacks

If you’re shopping for a home in a high-cost area or looking at properties priced above the conforming loan limits set by Fannie Mae and Freddie Mac, you may need a jumbo loan to finance your purchase. These loans are designed for buyers who need to borrow more than the standard conforming loan limits, which in most parts of the U.S. is $806,500 for a single-family home in 2025. In high-cost areas, this baseline can be even higher. But if your loan amount exceeds those limits, you’re in jumbo territory. Let’s break down how jumbo loans work, what you need to qualify, and the pros and cons you should consider before moving forward.

How a Jumbo Loan Works

At its core, a jumbo loan functions just like a conventional mortgage: You borrow money to buy a home, then pay it back over time with interest. The key difference is the loan amount exceeds the maximum conforming limits established by Fannie Mae and Freddie Mac.

Because jumbo loans fall outside those limits, they can’t be purchased or guaranteed by government-sponsored entities. That means lenders take on more risk—which translates into stricter guidelines, potentially higher costs, and more variation in loan terms across different lenders.

Jumbo Loan Requirements

To offset the added risk, lenders set tougher criteria for jumbo loans than for conforming loans. Here are the common requirements:

– Higher Credit Scores: Most lenders look for a FICO score of at least 700–720, although some may go lower with compensating factors.
– Larger Down Payments: Expect to put down at least 10%–20%, depending on your financial profile and the loan size.
– Lower Debt-to-Income (DTI) Ratio: You’ll likely need a DTI ratio below 43%, though lower is often preferred.
– Strong Reserves: Lenders may require you to show 6 to 12 months (or more) of mortgage payments in reserves.
– Full Documentation: Be prepared to provide tax returns, W-2s, bank statements, proof of employment, and documentation of assets.
– Appraisal Requirements: Jumbo loans may require two appraisals if the property value is especially high.

Important Note on Underwriting: Because jumbo loans are not backed by Fannie Mae, Freddie Mac, or FHA, each lender sets their own underwriting guidelines. That means if your financial situation involves self-employment, multiple income sources, or significant assets, you may need to shop around to find a lender that’s comfortable with your scenario.

Fees Associated With Jumbo Loans

Jumbo loans often come with higher closing costs than conforming loans. This can include larger origination fees, lender points, or additional appraisal and underwriting fees. Because the loan amounts are higher and the underwriting more complex, some lenders pass along those costs in the form of elevated fees. That said, many of these costs are negotiable—and shopping around can help keep them in check.

Loan Amounts and Upper Limits

There is technically no hard cap on jumbo loan amounts, but most lenders set internal limits based on their risk tolerance and market. Common jumbo loan ranges go from just above the conforming limit (around $806,501) up to $2 million–$3 million. Some lenders—especially private banks or portfolio lenders—offer super jumbo loans of $5 million or more, often with custom underwriting and asset requirements.

VA Jumbo Loans for Eligible Veterans

If you’re a veteran, it’s worth knowing that VA loans have no official loan limit for eligible borrowers—which means you can still use your VA benefit for a jumbo-sized home loan, depending on your entitlement and lender guidelines.

This type of loan is simply referred to as a VA jumbo loan, but it works like a regular VA loan in terms of zero down payment (for full entitlement), no PMI, and favorable terms. However, like other jumbo loans, lenders may apply additional credit score or reserve requirements—so it’s important to verify with a VA-approved lender.

Benefits of a Jumbo Loan

– Access to Higher Loan Amounts: Jumbo Loans allow you to finance a high-value property with a single mortgage—no need for piggyback loans or complicated structures.
– Competitive Interest Rates: Rates on jumbo loans have become increasingly competitive and, in some cases, may match or beat conforming loan rates, depending on your financial strength.
– No PMI With Larger Down Payments: Most jumbo loans do not require private mortgage insurance (PMI) if you put down at least 20%.
– Flexible Loan Structures: Jumbo loans can be structured as fixed-rate, adjustable-rate (ARM), or interest-only—depending on your goals and lender offerings.

Drawbacks of a Jumbo Loan

– Tougher Qualification Standards: Higher credit scores, bigger down payments, and strict documentation are standard.
– Larger Down Payment: While some lenders may allow 10% down, most borrowers should be prepared for 20% or more.
– Higher Fees: You may face higher origination fees and closing costs compared to a conventional loan.
– More Complex Underwriting: Expect more detailed reviews of income, assets, and property—especially for loans above $1 million.

Final Thoughts

A jumbo loan can be the right solution if you’re buying a high-priced home and have the financial strength to meet the stricter requirements. These loans are common in expensive metro areas and popular among buyers who want to finance a luxury property without splitting the financing into multiple mortgages.

Just remember: not all jumbo loans are created equal. Underwriting varies widely, so the lender you choose makes a big difference—especially if your financial picture is unique.

Questions about whether a jumbo loan is right for your situation? Feel free to reach out to me at 312-296-4175 or email me at connect@borislending.com — I’d be happy to help you evaluate your options, compare lenders, and guide you through the process.I lend in all 50 states and I am never too busy for your referrals!!