Understanding Jumbo Loans and Conforming Loan Limits
Jumbo financing is generally used when the mortgage amount needed for a property exceeds the applicable conforming loan limit. These loans can provide financing solutions for higher-priced homes and larger mortgage amounts, subject to lender underwriting requirements.
The Baseline
What Is a Conforming Loan Limit?
Conforming loan limits establish maximum loan amounts for mortgages that meet certain requirements associated with the conventional conforming mortgage market. These limits can change over time and vary by location.
Conforming loan limits can:
- Change periodically
- Vary based on property location
- Differ for certain high-cost areas
- Vary based on the number of residential units
"The applicable conforming loan limit should be verified for the property location and current year."
Jumbo Defined
What Is a Jumbo Loan?
A jumbo mortgage is generally a mortgage with a loan amount above the applicable conforming loan limit for the property. Because jumbo loans fall outside standard conforming loan limits, they may be subject to different lender, underwriting, documentation, reserve, down-payment, and pricing requirements.
"Jumbo does not describe the price of the home — it generally refers to the amount being financed relative to the applicable conforming loan limit."
A high purchase price does not automatically mean the mortgage is a jumbo loan. The loan amount relative to the applicable limit is what matters.
Common Use Cases
Why Would Someone Need a Jumbo Loan?
Jumbo financing may be considered when purchasing or refinancing properties that require a larger mortgage amount. Property and occupancy eligibility varies by lender and program.
- Higher-priced homes
- Luxury residences
- Properties in higher-cost housing markets
- Properties requiring larger mortgage amounts
- Certain second homes
- Certain investment properties, depending on lender programs
Location Matters
High-Cost Housing Markets
Some geographic areas may have higher conforming loan limits because housing costs are higher. Therefore, a mortgage amount that may be considered jumbo in one location might fall within conforming limits in another.
"Property location matters when determining whether financing is conforming or jumbo."
Purchase Price vs. Loan Amount
It's About the Loan Amount
A high purchase price does not automatically mean the mortgage is a jumbo loan. A borrower purchasing a higher-priced property may make a larger down payment, resulting in a mortgage balance that remains within the applicable conforming loan limit.
Conversely, a mortgage amount above the applicable conforming limit would generally require a jumbo or another appropriate financing structure.
Key Differences
How Jumbo Financing Differs
Jumbo loans may have different requirements than standard conforming mortgages. Not every jumbo lender follows identical requirements.
Potential differences may include:
- Credit requirements
- Income documentation
- Asset verification
- Cash-reserve requirements
- Down-payment requirements
- Debt-to-income requirements
- Property appraisal requirements
- Interest-rate structures
- Loan terms
- Property eligibility
Not One Program
Jumbo Loans Are Not One Single Program
"Jumbo loan" describes a category of mortgage financing rather than one single universal loan program. Different lenders may have substantially different jumbo guidelines.
One lender may offer different:
- Maximum loan amounts
- Reserve requirements
- Property types
- Credit standards
- Documentation options
- Interest rates and terms
"Jumbo financing can vary considerably from lender to lender."
Purchase Financing
Jumbo Purchase Financing
Jumbo financing may potentially be used to purchase an eligible higher-priced property when the required loan amount exceeds conforming limits. Qualification depends on the complete borrower and property profile.
Qualification depends on:
- Borrower financial profile
- Loan amount
- Property
- Occupancy
- Available assets
- Income
- Credit
- Lender guidelines
Refinance Financing
Jumbo Refinance Financing
Eligible homeowners may potentially use jumbo financing when refinancing a larger mortgage. Possible purposes may include:
- Rate-and-term refinancing
- Changing the loan structure
- Certain cash-out transactions when available
- Other eligible refinance objectives
"Refinancing is a new mortgage transaction and should be evaluated based on rates, costs, loan term, equity, and the borrower's financial objectives."
Side by Side
Jumbo vs. Conforming Financing
Conforming Financing
- Loan amount falls within applicable conforming limits
- Subject to applicable conforming mortgage guidelines
- Broad market availability
- Requirements vary by program and lender
Jumbo Financing
- Loan amount generally exceeds the applicable conforming limit
- Often uses lender-specific or investor-specific guidelines
- May require stronger financial documentation or reserves
- Requirements and availability vary significantly by lender
"Neither structure is automatically better. The appropriate financing depends on the borrower, property, loan amount, and available programs."
Documentation
Documentation Requirements
Jumbo loans may require detailed documentation because of the larger mortgage exposure. Not every lender requires identical documents.
- Income documentation
- Employment verification
- Tax returns when applicable
- Bank statements
- Investment statements
- Documentation of other assets
- Existing mortgage information
- Property information
- Other lender-required documentation
Cash Reserves
Reserve Requirements
Jumbo lenders may require borrowers to demonstrate that they have financial reserves remaining after closing. Reserve requirements are not universal.
Reserve requirements can vary based on:
- Loan amount
- Number of financed properties
- Occupancy
- Borrower profile
- Lender guidelines
- Other transaction characteristics
Appraisals
Jumbo Appraisals
Appraisal requirements may differ for larger mortgage transactions. Depending on the lender and loan amount, the transaction may potentially require:
- One appraisal
- Additional property review
- In certain cases, more than one valuation or appraisal
Not every jumbo mortgage requires two appraisals. Requirements vary by lender and transaction.
Who May Consider Jumbo
Who Might Consider Jumbo Financing?
- Buyers purchasing higher-priced homes
- Homeowners refinancing larger mortgages
- Executives or professionals with higher incomes
- Business owners
- Self-employed borrowers
- Real estate investors when eligible
- Buyers in high-cost real estate markets
- Borrowers with substantial assets
Being a high-income or high-asset borrower does not automatically guarantee jumbo approval.
Ask a Professional
Questions to Ask About Jumbo Financing
- Does my requested mortgage exceed the applicable conforming loan limit?
- What jumbo programs may be available?
- What down payment could be required?
- What credit requirements apply?
- What cash reserves are required?
- What income documentation is needed?
- Are there fixed-rate and adjustable-rate options?
- What property types are eligible?
- Are there special appraisal requirements?
- How do rates and closing costs compare with other financing options?
The Big Picture
Jumbo Financing Is Designed for Larger Mortgage Needs
"Jumbo financing is designed for larger mortgage needs, but qualification is based on the complete borrower and property profile."
Prosper Path Group can help clients explore available financing options through its lending network based on their individual transaction.
Ready to Begin?
Explore Your Jumbo Financing Options
Every borrower and property is different. Prosper Path Group can help you review your situation and explore available jumbo financing options through its lending network.
Jumbo mortgage programs, conforming loan limits, loan amounts, rates, terms, down-payment requirements, reserve requirements, property eligibility, and borrower qualification vary by lender, property location, loan program, market conditions, and applicable guidelines. Conforming loan limits may change periodically. Not all borrowers or properties will qualify. This information is provided for general educational purposes and is not a commitment to lend.
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