What Is a Jumbo Loan and How Does It Work?

Key Takeaways

• Jumbo loans exceed the conforming loan limits set by the Federal Housing Finance Agency (FHFA) and can be used for purchases and refinances, including cash-out refinances
• Choosing between a jumbo and a conforming loan depends on your financing needs, qualifications and available funds
• Conforming and jumbo loans differ in loan limits, down payment requirements and qualification standards

Jumbo loans are designed for homebuyers and homeowners who need financing above conforming loan limits, whether they're purchasing a higher-priced home or refinancing an existing mortgage.

But what is a jumbo loan, and how do jumbo loan requirements differ from those of a conforming mortgage? Below, we’ll cover current jumbo loan limits, the qualifications lenders look for and how jumbo financing compares with a conforming mortgage, so you can decide whether this type of home loan is right for you.

What Is a Jumbo Loan?

A jumbo loan, also known as a jumbo mortgage, is a non-conforming home loan with an amount that exceeds the conforming loan limit set by the FHFA. A borrower may want to consider a jumbo home loan when a conforming loan won't provide enough financing for a home purchase, refinance or cash-out refinance.

Jumbo loans can be used to purchase or refinance a range of property types, including:

• Single-family homes (attached/detached)
• Planned unit developments (attached/detached homes with a homeowners association)
• Condominiums
• One- to two- unit primary residences and investment properties
• One-unit second homes or vacation homes

While jumbo loans are typically associated with higher-priced homes, they're increasingly common in areas where home values exceed local conforming loan limits.

Jumbo Loan Limits

The Federal Housing Finance Agency (FHFA) sets conforming loan limits each year, and those limits can vary depending on where you're buying a home. If your loan amount exceeds the applicable limit for your area, you'll typically need a jumbo mortgage.

The conforming loan limit for 2026 for a one-unit property is:

• $832,750 in most counties
• Up to $1,249,125 in certain high-cost housing markets

Not sure what limit applies where you're buying? Your mortgage lender can help you determine the current county loan limit, or you can look it up using the FHFA conforming loan limit values map.

How to Qualify for a Jumbo Loan

Because jumbo mortgages involve larger loan amounts than conforming mortgages, qualification requirements are often more stringent. Borrowers generally need to meet certain credit, asset and income requirements to qualify.

High Credit Score

Your credit score is an important factor in any mortgage application, but you’ll typically need a higher credit score to qualify for a jumbo loan compared to a standard conforming loan. A credit score of 700 or higher is common for many jumbo mortgage programs. Higher scores may improve your chances of qualifying and could help you secure more favorable loan terms.

Cash Reserves

Lenders generally require borrowers to have assets available after closing to cover several months of mortgage payments. Depending on the loan amount, some jumbo loan programs may require up to 24 months of reserves.

Debt-to-Income Ratio

Your debt-to-income ratio tells lenders how much of your monthly income goes to debt. A low ratio can demonstrate that you have more room in your budget to take on a mortgage payment. Many jumbo loan lenders look for a DTI ratio of 45% or less, although some programs may allow a higher DTI (up to 50%) for well-qualified borrowers.

Documentation and Appraisal Requirements

To show your qualifications for a jumbo loan, you will likely need to show more documentation than for a typical mortgage loan. You may be asked to show up to two years’ worth of tax returns, W-2s and more. Some lenders also require a second appraisal.

Jumbo Loans vs. Conforming Loans

A jumbo loan is considered a non-conforming loan. Most mortgages are financed with conforming loans, which differ from jumbo loans in a few key ways:

• Loan limits. Conforming loans fall within the loan limits established by the Federal Housing Finance Agency (FHFA) and meet the guidelines set by Fannie Mae and Freddie Mac. Jumbo loans exceed those limits and are used when a borrower needs financing above the conforming loan threshold.
• Down payments. Jumbo loans often require a minimum 20% down payment, compared to the lower percentages allowed with conforming loans. That being said, qualified borrowers may be able to secure a Pennymac jumbo loan with as little as 10.01% down on loan amounts up to $2 million. Larger loan amounts generally require a larger down payment.
• Interest rates. Jumbo loan rates are set by individual lenders and may differ from conforming loan rates. Market conditions, lender guidelines and borrower qualifications influence rates.
• Closing costs and fees. Jumbo loans can have higher closing costs and fees than a conforming loan.

Is a Jumbo Loan Right for You?

A jumbo loan may be a good fit if you're purchasing or refinancing a property that requires financing above the conforming loan limit for your area. Depending on the lender and loan program, jumbo financing may be available for loan amounts well above conforming limits, including up to $3.5 million through Pennymac.

Before choosing a jumbo mortgage, consider whether:

• Your financing needs exceed the conforming loan limit for your area
• You have a solid credit history and a stable income source
• You have enough funds available for a down payment, closing costs and any required cash reserves
• You've compared jumbo loan options with other available financing solutions

Jumbo Loan FAQs

What Are Common Jumbo Loan Requirements?

Common jumbo loan requirements include a strong credit history, stable income, cash reserves, a manageable debt-to-income ratio and sufficient funds for a down payment and closing costs.

Is a Jumbo Home Loan a Conventional Loan?

Yes. Jumbo loans are considered conventional mortgages, but they are also classified as non-conforming loans because they exceed FHFA conforming loan limits.

Are Jumbo Loan Rates Higher Than Conforming Loan Rates?

Not always. Jumbo loan rates can be higher, lower or similar to conforming loan rates depending on market conditions, lender guidelines and borrower qualifications.

Since qualification requirements and loan terms can differ, it's a good idea to review your options with a mortgage professional. Contact a Pennymac Loan Expert, who can help you compare loan programs and determine whether a jumbo loan is the right mortgage for your goals.