A jumbo mortgage is a loan to finance a home that exceeds the Federal Housing Finance Agency’s conforming loan limits. As of 2021, the limits for single-family homes in most regions of the United States are $548,250 and $822,375 in most high-cost areas. Loans that exceed these limits are considered jumbo mortgages.
The best jumbo mortgages have low APRs, are available to those with a range of credit scores, and have a quick application process.
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Although you might pay more for jumbo mortgages, you can often get a jumbo mortgage for a rate that’s equal to or less than a non-jumbo conventional loan. Even so, it’s not as easy to qualify, and you can expect to need a down payment of 20% to 40% (sometimes as low as 10%). Plus, many lenders choose to keep jumbo loans in their own portfolios, so what it takes to qualify can vary widely.
That said, it’s important to consider various options before making a decision. All the lenders on our list offer competitive rates, terms, and qualifications.
What Is a Jumbo Mortgage?
A jumbo mortgage is a large loan to finance a house that exceeds the limits set by the Federal Housing Finance Agency (FHFA) for conventional loans purchased by Fannie Mae and Freddie Mac. When loans exceed the conforming loan limits, Fannie and Freddie are restricted by law from purchasing them from the originating lenders. This means lenders either need to keep these non-conforming loans in their own portfolios or find other investors willing to purchase them. As a result, jumbo loans are riskier for lenders than conforming conventional loans.
Whether a lender decides to keep a jumbo mortgage in its portfolio or sell it to an investor, it will develop qualifications and criteria to make sure the mortgages aren’t too risky. These criteria might include the types of properties that can be financed (e.g., primary residence vs. vacation home), how much equity is required (20% or more is typical, but it could be as low as 10%), and the creditworthiness of the borrower.
How Does a Jumbo Mortgage Work?
Like a conventional mortgage, you can get a variety of repayment terms (e.g., 10 to 30 years) and interest rate structures (e.g., fixed or adjustable) with jumbo mortgages. The terms and rates will vary based upon the lender you choose, your qualifications, where the property is located, and the characteristics of the property itself. To be considered a jumbo mortgage, the loan amount needs to exceed the conforming loan limits established by the FHFA.
The best rates and terms will be offered to the most creditworthy borrowers (e.g., those with excellent credit and repayment ability) and those with the greatest amount of equity in their homes (the lower the loan-to-value ratio, the better).
What it takes to qualify for a jumbo loan will vary by lender, property type, and loan amount. Lower loan amounts ($1 million or less) for primary residences may have easier qualifications. In contrast, larger loan amounts (greater than $1 million) and jumbo loans for other property types (e.g., vacation homes or second residences) typically have stricter qualifications.
Is It Hard to Get a Jumbo Mortgage?
Jumbo mortgages are considered a riskier type of loan by lenders, often making them more difficult to get than conforming conventional mortgages. This is partly because guarantees from the government are generally unavailable (e.g., from the Federal Housing Administration), and lenders are restricted by law from selling jumbo loans to Fannie Mae and Freddie Mac. Since lenders cannot pass on some of the jumbo loan risks to these entities, many lenders compensate for the additional risk by making the jumbo loan qualifications more difficult.
Research from the U.S. Department of Housing and Urban Development suggests that jumbo loans have a 20% higher probability of default rate than conforming loans. This is yet another reason why lenders typically have stricter qualifications for jumbo mortgages versus non-jumbo mortgages. Plus, although the delinquency probability for both jumbo and non-jumbo loans increases as loan-to-value ratios increase, it’s a sharper increase for jumbo loans.
Not surprisingly, one of the compensating factors mortgage lenders commonly use to address increased loan risk is the amount of the down payment that’s required. For this reason, a key difference in the typical qualifications between jumbo and non-jumbo loans is the down payment amount. While you can often qualify for non-jumbo loans with down payments as small as 3% to 3.5%, you’ll typically need a down payment of 20% or more to qualify for a jumbo loan.
You can expect the amount of down payment to increase for larger loan amounts, borrowers with bad credit, and vacation homes or second residences. It’s not unusual for lenders to require down payments as high as 20% to 40% for jumbo mortgages. However, you may be able to get a jumbo loan with a down payment as low as 10%. Plus, some lenders may offer VA-insured jumbo loans with no down payment.
Why Are Jumbo Mortgage Rates Higher Than Other Mortgage Rates?
Research from HUD suggests that jumbo mortgages may pose a greater risk to lenders than conforming loans. Some lenders may choose to compensate for this increased risk by charging higher rates, making it more difficult to qualify for a jumbo loan, or both. That said, it’s possible that the cost of a jumbo loan could be higher than the cost of a non-jumbo loan.
The principle of risk-based pricing is that lenders may choose to charge a higher rate for mortgages that pose a higher risk level. Before 2013, the rates for jumbo mortgages were typically higher than the rates charged for conventional loans. Even so, research suggests that jumbo mortgage rates from 2013 to 2019 were 5 basis points (0.05%) lower than the rates on non-jumbo (conforming) conventional mortgages.
Likely, this change in the difference in rates between jumbo loans and conforming conventional loans occurred because jumbo loans are now harder to get than they were before 2013. If you apply for a jumbo mortgage today, you’ll most likely need to fully document your income and be classified as a prime borrower. Research suggests that jumbo loans originated in 2020 had higher credit scores, lower loan-to-value ratios, and lower debt-to-income ratios than conforming conventional loans.
Research further suggests the spread between the rates on jumbo loans versus conforming conventional loans widened during the COVID-19 pandemic. According to the estimates, the difference in jumbo loan rates ranged from 8 basis points lower (unadjusted) to 11 points higher (adjusted to control for differences in borrower, loan, and property characteristics) than conforming loans between the second quarter of 2019 and the second quarter of 2020.
The change in the difference between jumbo and non-jumbo rates from 2019 to 2020 was likely related to lenders reducing the availability of jumbo mortgages to curb an increase in demand and address uncertainty in the economy. Notably, according to information provided by the Mortgage Bankers Association, the availability of jumbo mortgages increased for several months in a row towards the end of 2020.
Who Should Get a Jumbo Mortgage?
If you finance a home and the amount of the loan you require exceeds the conforming loan limits established by the Federal Housing Finance Agency (FHFA), you’ll need to get a jumbo mortgage. The limits set by the FHFA vary by property type and area. However, the 2021 conforming loan limit for single-family properties in most areas of the United States is $548,250. It goes up to $822,375 for single-family properties in most high-cost areas of the U.S., like Alaska and Hawaii.
Also, jumbo mortgages are only right for people with good-to-excellent credit, documented income sufficient to repay the loan, and plenty of cash for a down payment. You can expect to need a credit score of 680 to 740 or better, a debt-to-income ratio of no more than 38% to 43%, and a significant down payment to qualify for most jumbo mortgages. Keep in mind the jumbo loan qualifications will vary by lender, so it’s a good idea to research various options.
What Kind of Down Payment Is Needed for a Jumbo Mortgage?
The amount of money you’ll need to put toward a down payment for a jumbo mortgage will vary depending on the lender, loan amount, property type, and your creditworthiness. You can generally expect to need a down payment of 20% to 40% (possibly as low as 10%) for a jumbo mortgage. However, there are also some lower down payment options available. For example, the U.S. Department of Veterans Affairs (VA) allows for loans exceeding the conforming loan limits established by the FHFA without any down payment. Even so, lenders offering VA loans may have stricter criteria so it’s good to shop around.
Lenders typically require larger down payments for larger loans (e.g., loans greater than $1 million will often require more equity than loans of $1 million or less). In addition, applicants with lower credit scores or higher DTIs may be required to put more money down to compensate for the additional credit risk. Furthermore, higher down payments are often required for vacation homes and second residences, as lenders consider these riskier than primary residences.
Is There a Cutoff Limit for Jumbo Mortgages?
There is no standard cutoff limit for the maximum size of a jumbo mortgage you can get. Rather, each lender will set their own size limits. Jumbo loans start at amounts above the conforming loan limits established by the Federal Housing Finance Agency. As of 2021, the conforming loan limit for single-family properties in most regions of the United States is $548,250 and goes up to $822,375 in most areas deemed “high-cost” (for example, Alaska and Hawaii).
Although there are no cutoff limits for jumbo mortgages, some smaller lenders might not be willing or able to issue very large jumbo loans (e.g., those over $1.5 million to $2 million). This is especially true if they intend to hold the mortgages in their portfolios. The reason is partially because if they hold too many very large jumbo mortgages in their portfolios, they won't have as much capital to lend for other purposes.
If you’re shopping for a very large jumbo mortgage, it’s a good idea to look for a large lender, or a smaller lender that doesn’t have jumbo size restrictions (usually because they have investors in the secondary market already lined up to buy the loans). Ask questions at the outset of your lender discussions to avoid issues related to size down the road.
Is a Jumbo Mortgage the Same as an Adjustable Rate Mortgage?
As stated, a jumbo mortgage is a home loan that’s size exceeds the conforming loan limits set by the FHFA. In contrast, an adjustable-rate mortgage (ARM) is a loan of any size with a rate that adjusts based on a set interest rate index. An ARM is also sometimes referred to as a variable rate mortgage. A jumbo mortgage can be either a fixed-rate mortgage or an adjustable-rate mortgage.
Lenders typically reserve ARMs for the most well-qualified borrowers since these loans come with a higher risk level, particularly with jumbo loans. This is because there is the potential for the interest rate to increase over time (since it’s not fixed), along with your monthly payment.
Even if you can qualify for an ARM, make sure to carefully weigh the pros and cons before you make the final decision.
How We Chose the Best Jumbo Mortgage Rates
We carefully reviewed the rates and terms of several dozen mortgage lenders before deciding on the top choices for jumbo rates. We also took into consideration the APRs, the minimum credit score required, and how much of a down payment is needed.
All of the choices on our list were accessible to borrowers with good credit (scores of 680 to 740 or better) needing jumbo mortgages greater than the FHFA conforming loan limits.