A jumbo loan, or jumbo mortgage, is a mortgage loan that exceeds the limits set by the Federal Housing Finance Agency (FHFA). Jumbo loans are called nonconforming loans because they do not conform to those limits.

Because these jumbo mortgages don’t have the guarantees that come with conforming loans, borrowers tend to be subject to greater scrutiny and may or may not higher borrowing costs. A jumbo loan may attract different investors than those who are typically into buying conventional mortgage bonds.

Here’s how the mortgage industry works: Mortgages are originated by lenders, who immediately sell them to mortgage investors like Fannie Mae or Freddie Mac so that they continue to make loans. Fannie and Freddie are only authorized to purchase mortgages that conform to the their loan limits.

Fannie and Freddie set limits on how high your mortgage can be – they’re called conforming loan limits. Conforming loan limits vary by state and market. In 2022, you can only borrow up to $647,200 for a single-family unit in most parts of the U.S.

However, conforming loan limits go as high as $970,800 in Alaska and Hawaii, where the median price of a home is far above the national average. In other high-cost areas, loan limits are set on a county-by-county basis.

To find the conforming limits where you’re looking to buy a home, check this FHFA map.

If you want to own a home in some of the most expensive housing markets in the U.S., you’ll probably need a jumbo loan. Don’t worry, though – you’re not alone. With the currently sizzling housing market, many people are finding that even modest homes require a jumbo mortgage in some areas.

Because of this demand, lenders are becoming more comfortable offering jumbo mortgages. Rocket Mortgage® offers the Jumbo Smart loan, which is available with 15-year or 30-year fixed interest rates or a 7-year adjustable-rate. The 7-year period of the adjustable-rate mortgage (ARM) refers to how long the rate stays fixed at the beginning of the loan period, though all ARMs come with 30-year repayment terms. After the first 7 years, the jumbo ARM will adjust every 6 months.

It makes sense that lenders might charge higher interest rates on jumbo loans because, as mentioned before, there’s so much risk involved. However, market data suggests that interest rates on jumbo loans are very competitive with market rates.

At today’s rates, the difference between conforming and nonconforming loans ranges from just 0.25% to 1%. In fact, some jumbo loans have rates that are lower than other mortgage loans.

However, conforming loan limits go as high as $970,800 in Alaska and Hawaii, where the median price of a home is far above the national average. In other high-cost areas, loan limits are set on a county-by-county basis.

To find the conforming limits where you’re looking to buy a home, check this FHFA map.

Like conventional mortgages, you can get jumbo loans in a variety of terms or repayment schedules, and they can be fixed-rate or adjustable-rate loans. At this time, Rocket Mortgage is offering 15 and 30-year fixed or 7-year adjustable rate jumbo loans.

However, jumbo loans work differently than conventional mortgages. These loans have stricter requirements than other types of mortgages, and you’ll have to meet very specific property type, down payment, credit score and debt-to-income ratio requirements to get one.

Property Types

You can buy various types of properties with a jumbo loan because there are no government restrictions on how you can use your jumbo loan. As long as you meet your lender’s other requirements, you can use most jumbo mortgages for primary residences, vacation houses and investment properties.

Down Payment

Jumbo loans typically have much higher down payment requirements compared to conforming loans. It’s common to see lenders require 20% down on jumbo loans for single-family units. You may also need a higher down payment for second homes and multifamily units. Finally, the down payment required is based on your loan amount and credit score as well.

A low DTI  (debt to income) ratio is very important when you get a jumbo loan because it tells lenders that you will have enough cash flow to cover your mortgage payments. If you have a higher down payment or credit score, you may qualify for a jumbo loan with a higher DTI ratio.