Understanding Jumbo Loans

Understanding Jumbo loans

A Jumbo loan is any mortgage that exceeds the conforming loan limits set by the Federal Housing Finance Agency (FHFA). These loans are designed for high-end properties and are typically used by borrowers who need to finance luxury homes or properties with high price tags.

How much is a Jumbo loan?

For 2025, the conforming loan limit is $806,500 for a single-family home in most counties. In high-cost areas the maximum loan limit for a single-family home goes up to $1,209,750. High-cost areas include places where housing is more expensive like parts of California and New York. This means that a Jumbo loan is any loan amount that is greater than these limits in their respective areas.

How does a Jumbo loan work?

Jumbo loans follow their own set of guidelines and are considered non-conforming. These loans exceed the loan limit set by the government. They do not meet the loan requirements for Fannie Mae and Freddie Mac and they are not bought by them. Instead, non-conforming loans are funded by private lenders. Since they are less standardized, and not governed by a federal agency like other loans, the features of the loan agreement can change greatly from lender to lender.

Jumbo mortgages are also underwritten manually. This means your financial information and profile doesn’t go through an automatic underwriting program, but is initially reviewed in detail by a financial expert.

Jumbo mortgages are different than traditional loans in that they may have higher interest rates and stricter guidelines than traditional loans. Since they are usually not backed by the government, lenders find ways to offset the risk of lending large amounts of money without a guarantee.

How much higher are Jumbo loan rates?

Jumbo loan rates are typically higher than conforming loan rates, although the difference can vary depending on market conditions and lender policies. On average, Jumbo loan rates may be 0.25% to 1% higher than conforming loan rates. For example, if the conforming loan rate is 6%, the Jumbo loan rate might be 6.25% to 7%.

The rate that you will receive on your loan will also depend on your unique financial situation.

If you are a homebuyer and would like to purchase a house in a particularly high-priced area or if the home want is more expensive than what a traditional mortgage can finance, then a Jumbo loan might be a valuable choice for you.