What is a jumbo loan?

A jumbo loan is a type of mortgage loan secured by a high-valued property that exceeds the loan size limits set by the Federal Housing Finance Agency (FHFA). In general, these loans typically require borrowers to have a higher credit score, larger down payment, and a higher debt-to-income ratio. In Washington, the conforming loan limits are $726,525 for 2021. Any loan that is larger than this amount is considered to be a jumbo loan. Jumbo loans come with a few additional features that standard mortgages do not. Generally, borrowers must attach reserves, or funds that can cover a borrower’s debt payments if the loan defaults. Additionally, lenders may require a higher credit score and debt-to-income ratio for borrowers seeking a jumbo loan than with a conventional mortgage. Due to the added risk that comes with jumbo loans, lenders may charge a slightly higher interest rate than with a conventional loan. Additionally, borrowers may also need to pay for private mortgage insurance if the loan-to-value ratio of the loan exceeds 80%. This can add to the overall cost of the loan. Overall, jumbo loans are an attractive option for those looking to purchase high-end properties, however they can be risky and come with a few extra requirements. It is important to research the requirements and understand all the risks associated with a jumbo loan before making this type of purchase.

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What is a jumbo loan?

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