What is a Jumbo Loan?

A jumbo loan is a mortgage for an amount that exceeds the limits set by Fannie Mae and Freddie Mac, the government-sponsored enterprises that buy most U.S. home loans and package them for investors. Jumbo loans are commonly used to finance high-value properties, such as homes in expensive markets like Silicon Valley or luxury real estate like mansions.

What Are the Benefits of a Jumbo Loan?

The main advantage of a jumbo loan is that it allows borrowers to finance a home that exceeds conforming loan limits. Benefits include:

• Ability to borrow more than standard loan limits (e.g., $1 million for a $1.5 million home)
• Preserves cash flow and investment capital for borrowers who prefer not to tie up funds
• Access to competitive interest rates, even for high loan amounts
• Flexibility to purchase homes in high-cost areas

What Are the Jumbo Loan Requirements?

Jumbo loans follow a similar application and underwriting process as conforming loans but have stricter requirements due to the higher loan amount. Key criteria include:

• High Credit Score: Typically required to access the best rates and terms
• Down Payment: A larger down payment is usually expected
• Debt-to-Income (DTI) Ratio: Must be within acceptable limits to prove affordability
• Employment History: Steady and verifiable income is necessary
• Post-Closing Reserves: Lenders usually require 12 months of reserves, with at least half in liquid assets (e.g., checking or savings accounts) and the rest in retirement or investment accounts

Exceptions may be made if you have a low DTI and a large down payment, even if you don't meet every reserve requirement.