What is a jumbo mortgage?

A jumbo mortgage is for properties that are too expensive for a conventional loan that is limited by Fannie Mae and Freddie Mac. Jumbo loans are also called non-conforming loans because they can’t be guaranteed by Fannie Mae and Freddie Mac. The lender is not protected from borrower default. Hence, jumbo loans are considered riskier. You can opt for either a fixed-rate or an adjustable-rate jumbo mortgage with different terms.

The maximum amount for a conventional conforming loan in 2023 is $726,200 as set by the Federal Housing Finance Agency (FHFA). 

Jumbo loan underwriting criteria are stricter because they offer a larger amount at more risk to the lender. While a good credit score is necessary for any mortgage, lenders generally look for a FICO^®  Score of more than 700 to qualify for a jumbo loan. 

Some lenders have a 45% debt-to-income ratio limit, though you may be able to get approval with more cash reserves. In addition to this, jumbo loans also require detailed documentation of your tax returns and other financial details like investments and bank statements. Lenders may also ask for a second appraisal for the home you plan to purchase.

Jumbo loans have generally higher costs than other loan types — expect a higher down payment (at least 20%), potentially higher interest rates when compared to conventional conforming loans, and high closing costs with jumbo loans.