Routing # 256078446
MORTGAGE KNOWLEDGE CENTER
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MORTGAGE
What is a Jumbo Loan?
What you'll learn: What you need to know about jumbo loans and what they are typically used for.
EXPECTED READ TIME: 5 MINUTES
November 23, 2020 | Updated January 2, 2026
Picture this: You found your dream home with all the features and amenities you have on your list. However, it is too expensive for a conventional conforming loan.
The good news is, you have another loan option at your disposal called a jumbo loan.
What is a jumbo loan?
A jumbo loan is a mortgage that exceeds the amount available for a conventional conforming loan. One of the key aspects of a conforming loan is that it has a limit on the amount that you can borrow. Conforming loans have rules that describe how you can qualify for a mortgage, how much you can borrow, and how the lender may structure the loan. Freddie Mac and Fannie Mae, the federally backed mortgage companies created by Congress, set these rules. As of 2026, the average maximum amount for a conforming mortgage is $832,750.
Sometimes jumbo loans are called non-conventional conforming loans. That basically means neither Freddie Mac nor Fannie Mae guarantees the loans, which makes them riskier for lenders. Lenders typically offer jumbo loans for fixed-rate or adjustable-rate mortgages (ARMs).
How are jumbo loans different from other mortgage options?
As large loans with amounts that exceed the federal loan limit, jumbo loans are typically harder for borrowers to qualify for compared to other mortgage options. However, they do offer competitive interest rates and offer homebuyers a way to secure the funds needed for more expensive home purchases.
How do jumbo loans work?
A jumbo loan works the same way as most other types of mortgages, they just have a higher loan amount and stricter underwriting requirements. Across the board, the criteria lenders use to see if you qualify generally include:
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A higher credit score compared to a conventional conforming loan (most lenders require a minimum of 700)
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More cash savings for a down payment and as reserve
However, if you are able to meet your lender’s qualifications, you will be able to choose your jumbo loan terms much the same as you would for a conventional loan. You can opt for a 30-year loan or a shorter term if you desire. You will also have fixed-rate and adjustable-rate options available to you.
Jumbo loan pros and cons
If you are looking for your dream home in an expensive area, or you know that your price point will be higher no matter where you look, opting for a jumbo loan may be an easy decision. However, if your home price budget is not set in stone on either side of the conforming loan limit, here are the pros and cons you should consider.
Jumbo loan pros:
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Larger loan amount: Jumbo loans can give you the means to purchase property at a higher price point. Whether you are in the market for a high-end property that already has all the bells and whistles you are looking for, or you are interested in a luxurious vacation home investment, then a jumbo loan can give you access to the financing you need.
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Competitive interest rates: The interest rates for a jumbo loan can be comparable to your typical conforming conventional loans.
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Various loan and term options: With a jumbo loan, you are able to choose your term and determine if you prefer a fixed rate or an adjustable rate. You are also not limited to conventional loan options. If you are a VA-eligible borrower, you have access to VA jumbo loans, meaning you can enjoy all of the advantages of a VA loan including an excellent jumbo loan rate with none of the conforming loan limits.
Jumbo loan cons:
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Bigger down payment required: For the most part, many conforming loans allow borrowers to put down less than the recommended 20% down payment. For instance, conventional loans allow as little as 3% to 5% down. However, with a jumbo loan, you may be required to provide a down payment of at least 10%.
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Higher closing costs and fees: Jumbo loans provide a large amount of funds, so it takes extra steps to get it through the underwriting process. This means you can expect to pay higher costs and fees at closing.
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Stricter borrower qualifications: Since jumbo loans are considered a risk for your lender, they will have much stricter borrower requirements compared to conforming loans. For example, most lenders will require that you have a credit score above 700 and a debt-to-income (DTI) ratio lower than 43%. You may also have to provide documents that show 3 to 24 months worth of cash reserves.
Discuss your options with a trusted lender
If you live in an area where housing is at a premium, you may need to consider a jumbo loan unless you have the funds available for a down payment. Since they are somewhat of a specialty, it is important to seek out a lender that has a strong history and portfolio of experience financing jumbo loans.
A loan officer can explain the different types of loans, when or if a jumbo loan is necessary, and help you determine what makes the most sense for your unique needs.
SIMILAR ARTICLES
Home Buying Process Step-by-Step
In home buying, it's important to understand everything that's involved. Follow PenFed Credit Union's step-by-step process before you step into your new home.
Can I Afford a Jumbo Loan?
Discover what it takes to get a jumbo loan and whether or not it fits into your budget. A jumbo mortgage could be the best choice in today's market.
Understanding Jumbo Loan Rates
Jumbo loan interest rates can vary based on credit, income, down payment or equity, and property type. Learn how to get the best jumbo loan interest rates.
What Is an Adjustable Rate Mortgage?
An adjustable rate mortgage, or ARM, is a mortgage in which the interest rate can change over time. PenFed is here to explain the benefits of an ARM and if an ARM is right for you.
Home Buying Steps
Mortgage Products
Disclosures
1Conventional Loans
Except for holidays, rates are updated Monday through Friday at 10:15am EST. The advertised rates and points are subject to change. The information provided is based on 1.0 discount point, which equals 1.0 percent of the loan amount, and assumes the purpose of the loan is to purchase a property with a 30-year, conforming, fixed-rate loan. Loan amount of $400,000; loan-to-value ratio of 75%; credit score of 760; and DTI of 18% or less. The property is an existing single-family home and will be used as a primary residence. The advertised rates are based on certain assumptions and loan scenarios, and the rate you may receive will depend on your individual circumstances, including your credit history, loan amount, down payment, and our internal credit criteria. Other rates, points, and terms may be available. All loans are subject to credit and property approval.
Rates quoted require a loan origination fee of 1%; not to exceed $1,995. Speak to a PenFed Mortgage Loan Officer for additional details.
2FHA Loans
Except for holidays, rates are updated Monday through Friday at 10:15am EST. The advertised rates and points are subject to change. The information provided is based on 1.0 discount point, which equals 1.0 percent of the loan amount, and assumes the purpose of the loan is to purchase a property with a 30-year, conforming, fixed-rate loan. Loan amount of $400,000; loan-to-value ratio of 96.5%; credit score of 760; and DTI of 18% or less. The property is an existing single-family home and will be used as a primary residence. The advertised rates are based on certain assumptions and loan scenarios, and the rate you may receive will depend on your individual circumstances, including your credit history, loan amount, down payment, and our internal credit criteria. Other rates, points, and terms may be available. All loans are subject to credit and property approval.
Rates quoted require a loan origination fee of 1%; not to exceed $1,995. Speak to a PenFed Mortgage Loan Officer for additional details.
3VA Loans
Except for holidays, rates are updated Monday through Friday at 10:15am EST. The advertised rates and points are subject to change. The information provided is based on 1.125 discount point, which equals 1.125 percent of the loan amount, and assumes the purpose of the loan is to purchase a property with a 30-year, conforming, fixed-rate loan. Loan amount of $450,000; loan-to-value ratio of 95%; credit score of 760; and DTI of 18% or less. The property is an existing single-family home and will be used as a primary residence. The advertised rates are based on certain assumptions and loan scenarios, and the rate you may receive will depend on your individual circumstances, including your credit history, loan amount, down payment, and our internal credit criteria. Other rates, points, and terms may be available. All loans are subject to credit and property approval.
Rates quoted require a loan origination fee of $995.
4Jumbo Loans
Except for holidays, rates are updated Monday through Friday at 10:15am EST. The advertised rates and points are subject to change. The information provided is based on 0.625 discount point, which equals 0.625 percent of the loan amount, and assumes the purpose of the loan is to purchase a property with a 30-year, non-conforming, fixed-rate loan. Loan amount of $1,009,000; loan-to-value ratio of 70%; credit score of 760; and DTI of 18% or less. The property is an existing single-family home and will be used as a primary residence. The advertised rates are based on certain assumptions and loan scenarios, and the rate you may receive will depend on your individual circumstances, including your credit history, loan amount, down payment, and our internal credit criteria. Other rates, points, and terms may be available. All loans are subject to credit and property approval.
Rates quoted require a loan origination fee of 1%; not to exceed $1,995. Speak to a PenFed Mortgage Loan Officer for additional details.
Fixed Rate Advance Lock-In You may lock in an Annual Percentage Rate for Advances during the Advance Period. During your Advance Period, you may choose to have three separate Fixed Rate Advances locked in at any one time, with a maximum of two new Fixed Rate Advances per calendar year. Each Fixed Rate Advance must equal or exceed Ten Thousand Dollars ($10,000.00) and you may not request a Fixed Rate Advance that would cause the amount you owe to exceed your Credit Limit. The only term option for your Fixed Rate Advance is 240 months (“Fixed Rate Advance Term”). However, the term of your Fixed Rate Advance cannot exceed your Repayment Period.
Routing #256078446
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