What is a Jumbo Loan?

Jumbo Loan Amounts

In 2021, the Federal Housing Finance Agency raised the regular conforming loan amounts to $548,250 (for most single family homes across the country) and $822,375 (for abnormally pricey areas like New York, L.A., and the San Francisco Bay Area).

This means that as of 2021, if a loan exceeds $548,250 (or $822,375 in an expensive area) it is a jumbo loan. Unlike regular loans, jumbo loans don’t have an official limit. They can run as high as the lender decides. Depending on the lender, jumbo loan amounts can easily run into the millions.  

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Jumbo Loan Qualifications

If you’re hoping to take out a jumbo loan, your lender will likely require a FICO credit score of at least 700, a larger down payment, extra appraisal, and they will likely come with additional due to their unique underwriting requirements.

You will also need extensive documentation to prove you are capable of paying lenders back. Lenders are not protected in case of default for jumbo loans the same way they are for regular loans. So it will take more for borrowers to reassure them. For example, you may need to provide full tax returns, W-2s, 1099s, bank statements, and additional information on any of your other investment accounts.

Because of these extra requirements jumbo loans are typically given to HENRYs (High Earners, Not Rich Yet folks) who have high-paying jobs and earn lots of money (over $250,0000 a year) but they haven’t had those jobs for very long. So while they don’t yet have millions of dollars saved in the bank, and have very few or no assets, it’s still very likely that they will be able to pay off even a very large loan amount.

Some jumbo loans offer lower interest rates than conforming loans, making them an appealing option for large investments. But possible lower interest rates should not be a reason to seek out jumbo loans. You may want to consider taking out two smaller loans instead of one jumbo loan, or choosing a less expensive property. Jumbo loans do come with certain tax benefits but big properties come with big expenses. A home might cost you much more over time than the loan needed to buy it.

Our advice is to think carefully about your reasons for taking out a loan, compare your loan options, and calculate what you can truly afford.