Few things feel more serious than taking out a loan, especially when that loan is a mortgage to buy a house. You’re signing on to care for and maintain real estate property, while also agreeing to pay back your loan in accordance with the contract you signed in order to receive the funds. So when a term like “jumbo mortgage” comes up, it may sound like some kind of joke or exaggeration, or — if you’ll excuse the pun — mumbo jumbo. But in fact, it’s a very real thing!
To clear up any confusion, we’re digging into exactly what a jumbo mortgage is, how it works, and who it’s for. For expert, first-hand insight, we’ve brought in top Washington, D.C. area real estate agent Jason Cheperdak, who also holds a jumbo mortgage himself.
Find a Top Buyer’s Agent to Guide You
HomeLight can connect you with a top real estate agent familiar with the mortgage application process and home listings in your area. We analyze over 27 million transactions and thousands of reviews to determine which agent is best for you based on your needs.
First things first: What is a jumbo mortgage?
Jumbo mortgages are home loans for an amount that surpasses the conforming loan limits set by the Federal Housing Finance Agency (FHFA).
In this case, “conforming” means that a loan meets the requirements for purchase by a government-sponsored enterprise (GSE) — think Fannie Mae and Freddie Mac. When a loan doesn’t meet these requirements, it’s considered non-conforming, and this includes jumbo loans.
Though jumbo loans can have favorably low interest rates (more on that later), they are a higher risk for the lender, and thus carry more stringent requirements for borrowers.
So, what is the conforming loan limit?
This amount is subject to change each year, and its specifics are location-based.
For 2024, the conforming loan baseline limit is $766,550 for a single-family home. (For the sake of comparison, the baseline in 2023 was $726,200.)
In some areas where the cost of living is higher than the national average, this limit may be adjusted to accommodate higher housing prices — for 2024, that translates to $1,149,825, or 150% of the baseline. Metro areas in California, Colorado, New Jersey, New York, and Washington, D.C., are typical recipients of this higher limit, as are Hawaii and Alaska.
Who determines these limits, and how are they set?
The Federal Housing Finance Agency (FHFA) sets these baseline limits. Each year, the conforming loan limit is determined by a formula set forth by the Housing and Economic Recovery Act (HERA) of 2008.
Put simply, the FHFA evaluates the average home value in the United States through their House Price Index, and the conforming loan limit is set based upon this average figure. As the average home value rises each year, the FHFA increases the conforming loan limit. New loan limits are typically announced at the end of the year — the numbers for 2024 were announced in mid-November of 2023, for example.
As mentioned above, because some areas of the country have consistently higher home prices and overall costs of living, the conforming loan limits for those regions are also adjusted accordingly on an annual basis.
(Note that while there are countless charts on conforming loan limits available online, the best way to ensure that you’re receiving the most accurate, up-to-date information on jumbo loans and limits in your state and county is always to speak directly with a lender or refer to the FHFA website.)
How does someone qualify for a jumbo mortgage? What are the interest rates?
Because jumbo loans are for a (subjectively) large amount of money, your credit score and credit history will need to be in great shape.
Expect lenders to look for a credit score above 700 — perhaps even above 720 — and a low debt-to-income (DTI) ratio, which refers to the amount of debt you are repaying monthly (including your mortgage payment) in relation to your income. A DTI of 36% is preferred, though there may be wiggle room up to 45%, depending on your assets and the lender.
Speaking of which, if you’re pursuing a jumbo loan, you’ll need to be prepared to put down some cash.
“I think the first thing people need to know is that you’ll [usually] need to put down 20% or more,” notes Cheperdak.
While this isn’t strictly true with every lender in every market, a 20% down payment is a pretty common request among jumbo loan providers. An exception to this is if you’re qualified to pursue a Veterans Affairs (VA) loan — the only type of government-backed jumbo loan available — in which case the 0% down benefits could extend to jumbo loans.
“This is a game-changer,” says Cheperdak. “In my opinion, this gives our veteran community some of the most flexibility and the most buying power in today’s market.”
As for jumbo mortgage interest rates, while you might expect a higher-than-normal rate given the higher-than-normal dollar amounts involved, you may be surprised. As of this writing, the current national average interest rate on a 30-year fixed-rate jumbo mortgage is 6.62%. Meanwhile, the average interest rate on a standard 30-year fixed mortgage is 6.52%.
Though interest rates are subject to change regularly, according to Chase, “Jumbo mortgage rates are often competitive and may be lower than conforming mortgage rates.”
Bottom line? It all depends on market conditions and the lender. That’s why, as we’re about to discuss, it’s worth consulting experts and rate-shopping your jumbo loan.
English (US) · 