Jumbo loan: Definition, rates, and how to qualify

July 2024 · 7 minute read
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  • Jumbo loan definition
  • How to qualify for a jumbo loan
  • Jumbo mortgage rates
  • Shop around for a jumbo loan lender

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    For those who live in high-cost areas or have large homebuying budgets, a regular conforming mortgage might not cut it. 

    If you need an especially large loan, you'll likely need to find a mortgage lender that offers jumbo mortgages. These mortgages are a little trickier to qualify for, but they come with the benefit of larger loan amounts — often up to $2 or $3 million. Plus, jumbo mortgage rates are often on par with conforming rates.

    Jumbo loan definition

    A jumbo loan, also known as a nonconforming loan, is a type of conventional mortgage. Jumbo loans surpass the limits for conforming loans from the Federal Housing Finance Agency (FHFA). 

    The FHFA sets the limit for conforming loans annually. In 2024, the conforming loan limit is $766,550 in most parts of the US. In areas with a higher cost of living, the limit goes up to a ceiling of $1,149,825. 

    Jumbo loans are riskier for lenders than conforming loans. They can't be backed by Fannie Mae or Freddie Mac, so lenders usually have stricter guidelines for borrowers to receive jumbo loans. 

    How to qualify for a jumbo loan

    A jumbo loan can help you afford a higher-cost home, but there are some factors to take into consideration before you apply. Each lender has different qualifications for receiving a jumbo loan, but here are some general guidelines you can expect:

    You'll usually need to put at least 10% or 20% down

    Many mortgage lenders accept down payments as low as 3% for conforming loans. But for a jumbo loan, many lenders require at least 20% upfront.

    Don't throw in the towel if you know you don't have 20% handy. Some lenders, such as Ally and Better Mortgage, only require 10% down. And though it's less common, you may be able to find a jumbo lender that will accept a down payment of just 5%.

    You'll need a good credit score

    Before lending you hundreds of thousands of dollars, lenders want to know you're financially responsible. You'll need a higher credit score to qualify for a jumbo loan than you would for a conforming loan — often at least 700, though individual lenders may have minimum score requirements that are higher or lower than this. The higher your score, the better rate you'll get.

    You'll need a lower debt-to-income ratio

    Your debt-to-income ratio is the monthly amount you pay toward debts divided by your gross monthly income. For example, if you spend $2,000 per month on your mortgage and student loan payments, and you earn $3,000 per month, your debt-to-income ratio is $2,000 divided by $3,000, or 66%.

    Your exact required debt-to-income ratio depends on your lender. The company will likely require a lower ratio for a jumbo loan than a conforming loan. Most ask for a ratio of around 40%, give or take a couple percentage points. Typically, 45% is the highest you can go.

    A lower ratio means you owe significantly less than you earn, leading lenders to believe you can afford the high payments that accompany a jumbo loan.

    You may need cash reserves in the bank to prove you can cover your payments

    Many lenders want to see that you have enough money in your savings to cover a few months of mortgage payments if you were to unexpectedly lose your source of income. This money is referred to as your cash reserves.

    How much you'll need can vary depending on your lender and the level of risk it would be taking on with your loan, but it's generally a good idea to plan to have six to 12 months' worth of mortgage payments set aside.

    This cash may need to be in a more liquid form, such as in a checking or savings account, though your lender may also include sources like retirement or brokerage accounts when calculating your reserves.

    Jumbo mortgage rates

    Mortgage rates eased last month, and they've been trending even lower in recent weeks. In June, 30-year conventional rates averaged 6.58% overall for the month, according to Zillow data. This is down 18 basis points from the previous month's average.

    Mortgage rates are expected to go down further throughout the rest of 2024 as inflation slows.

    You might think that jumbo mortgage rates are always higher than conforming mortgage rates, but that's not necessarily the case. After checking with several sources and lenders, many lenders offer jumbo rates that are comparable to or even lower than conforming rates.

    However, even if you're able to get a jumbo loan with a low rate, keep in mind that the more money you borrow, the larger your monthly payment and the more you'll ultimately spend on interest. 

    Shop around for a jumbo loan lender

    If necessary, take some time to boost your credit score or save more for a down payment before starting the application process. Taking necessary steps can increase your chances of being approved for a jumbo loan and scoring a lower rate.

    Finally, shop around for a lender. Some lenders will require smaller down payments or higher debt-to-income ratios than others, and some will give you a better rate. You may also go through a mortgage broker for a professional to do the research for you.

    spanLaura Grace Tarpley (she/her) is an expert in mortgage rates, refinance rates, lenders, bank accounts, and borrowing and savings tips for Personal Finance Insider. She worked on  Business Insider's "The Road to Home" series, which won a Silver award from the National Associate of Real Estate Editors./spanspanShe has written about personal finance for over seven years. Before joining the Business Insider team, she was a freelance finance writer for companies like SoFi and The Penny Hoarder, as well as an editor at FluentU./span Laura Grace Tarpley, CEPF Personal Finance Reviews Editor Laura Grace Tarpley (she/her) is an expert in mortgage rates, refinance rates, lenders, bank accounts, and borrowing and savings tips for Personal Finance Insider. She worked on  Business Insider's "The Road to Home" series, which won a Silver award from the National Associate of Real Estate Editors.She has written about personal finance for over seven years. Before joining the Business Insider team, she was a freelance finance writer for companies like SoFi and The Penny Hoarder, as well as an editor at FluentU. Read more Read less spanMolly Grace is a mortgage reporter for Business Insider with over six years of experience writing about mortgages and homeownership. /spanspanExperience/spanspanIn addition to her daily mortgage rate coverage, Molly also writes mortgage lender reviews and educational articles on homebuying and analyzes data and economic trends to give readers actionable and up-to-date information about the housing market./spanspanShe also tracks affordable mortgage and down payment assistance programs offered throughout the country to keep her readers informed of homebuyer programs available to them. /spanspanBefore Business Insider, Molly was a blog writer for Rocket Companies and helped to create Rocket Mortgage’s Shorty Award-winning podcast Home. Made./spanspanMolly is passionate about covering personal finance topics with empathy. Her goal is to make homebuying knowledge more accessible, especially for groups that may think homeownership is out of reach. /spanspanExpertise/spanspanMolly is an expert in the following topics:/spanullispanMortgages and mortgage lenders/span/lilispanHome equity/span/lilispanThe housing market/span/lilispanThe economy and the forces that impact mortgage rates/span/lilispanBudgeting and saving/span/lilispanCredit/span/lilispanInsurance/span/lilispanRetirement savings/span/li/ulspanEducation/spanspanMolly earned a bachelor's degree in journalism from Indiana University. /spanspanShe is based in Michigan and has a dog and two cats. /span Molly Grace Mortgage Reporter Molly Grace is a mortgage reporter for Business Insider with over six years of experience writing about mortgages and homeownership. ExperienceIn addition to her daily mortgage rate coverage, Molly also writes mortgage lender reviews and educational articles on homebuying and analyzes data and economic trends to give readers actionable and up-to-date information about the housing market.She also tracks affordable mortgage and down payment assistance programs offered throughout the country to keep her readers informed of homebuyer programs available to them. Before Business Insider, Molly was a blog writer for Rocket Companies and helped to create Rocket Mortgage’s Shorty Award-winning podcast Home. Made.Molly is passionate about covering personal finance topics with empathy. Her goal is to make homebuying knowledge more accessible, especially for groups that may think homeownership is out of reach. ExpertiseMolly is an expert in the following topics:EducationMolly earned a bachelor's degree in journalism from Indiana University. She is based in Michigan and has a dog and two cats.  Read more Read less Top Offers From Our Partners Chime® Checking Account Set up Direct Deposit and get your paycheck up to 2 days before your coworkers.** No overdraft fees. No monthly fees. A tooltip Chime is a financial technology company, not a bank. Banking services provided by The Bancorp Bank, N.A. or Stride Bank, N.A., Members FDIC. **Early access to direct deposit funds depends on the timing of the submission of the payment file from the payer. We generally make these funds available on the day the payment file is received, which may be up to 2 days earlier than the scheduled payment date. Start Banking

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