What Is a Jumbo Mortgage Loan, And How Do They Work?

In this tutorial, you’ll learn what is considered a jumbo loan. You’ll also learn how using a jumbo mortgage loan might affect you, as a borrower. In most parts of the country, a jumbo loan is any conventional mortgage product that exceeds the conforming loan limit of $453,100. In the more expensive real estate markets, that threshold is set much higher.

What Is a Jumbo Mortgage Loan?

Definition: A jumbo loan is one that exceeds the conforming loan limit for the county where the home is being purchased. Because it does not “conform” to those size restrictions, it cannot be sold to Fannie Mae or Freddie Mac via the secondary mortgage market.

Fannie Mae and Freddie Mac are the two government-sponsored enterprises, or GSEs, that buy home loans from lenders and sell them in the form of mortgage-backed securities (MBS).

These two organization have specific rules for the kinds of home loans they can purchase, and size is one of the requirements:

  • When a loan meets the guidelines for GSE purchase, it is referred to as a “conforming” loan.
  • If it exceeds the maximum conforming size limits used by Fannie and Freddie, it is considered to be a “jumbo” loan.

Jumbo Loan Threshold Varies by County

From an actual money standpoint, the definition of a jumbo loan will vary from one county to the next.

In most counties across the U.S., the 2018 conforming loan limit for single-family homes is $453,100. So in those counties, anything above $453,100 would be considered a jumbo loan. In more expensive real estate markets, the conforming limit can be as high as $679,650 (as of 2018).

Example: In Cook County, Illinois, the 2018 conforming loan limit for a single-family home is $424,100. So in that county, a mortgage amount higher than $424,100 would be considered a jumbo loan.

To figure out what is considered to be a jumbo mortgage loan in your area, you must first look at the conforming limits for your county. Those limits are established at the county level and are based on median home values.

[Note: You can view your county’s limits on our map page. You can also download them in PDF form by clicking the “conforming” link in the main menu above.]

These limits vary by county are are reviewed annually. Sometimes, the Federal Housing Finance Agency (FHFA) will increase the loan limits — and thus the jumbo mortgage threshold as well — in response to rising home values during the course of a year. Other years, they simply carry them over unchanged. It varies.

Stricter Standards Are Common

Jumbo loans usually come with stricter qualification guidelines for borrowers. This is due to their larger size, which represents a bigger risk to the lender and/or investor who purchases the loan.

But these standards can vary from one lender to the next. There is no industry-wide standard for jumbo loan requirements in the U.S. Some lenders might require larger down payments and higher credit scores for borrowers seeking a jumbo loan. Those are two areas where lenders often “raise the bar” for these larger, non-conforming mortgage products.

Jumbo Loans Have Lower Rates, on Average

You might think that jumbo loans would come with higher interest rates than their smaller “conforming” counterparts. After all, there’s more money being borrowed with a jumbo mortgage product. So there’s a higher level of risk for the lender. This would lead to higher rates. Right?

Actually, jumbo loans tend to have lower interest rates (on average) than the smaller conforming loans.

For example, when this article was published in September 2018, the average rate for a 30-year fixed-rate mortgage with a conforming loan size was 4.97%. The average rate for a 30-year mortgage with a jumbo balance was 4.92%.

So borrowers shouldn’t assume they’ll end up with a higher interest rate just because they are using a jumbo loan. In fact, the opposite might be true.

Recap: When a home loan exceeds the conforming size limit for the county where the property is located, it is considered to be a jumbo mortgage. This means it’s a non-conforming loan that cannot be sold to Fannie Mae or Freddie Mac. While jumbo products sometimes have stricter qualifying criteria, they can actually have lower average rates than smaller conforming loans.