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What is a jumbo loan? Understand the basics

What we'll cover

  • An overview of jumbo loans

  • When a jumbo loan is needed

  • Requirements for borrowers to qualify

Looking to buy a home? If you're wanting to move into a high-value property or one where the cost of living is expensive, you might need to consider a jumbo mortgage.

A jumbo loan isn't your typical home loan, in terms of how much you can borrow or what's required to qualify. With a jumbo mortgage, you're borrowing more money for a home than you typically would with another home loan.

Here's what you need to know about how these loans work and when you might consider one for your home purchase.

What is a jumbo loan?

A jumbo loan is a nonconforming mortgage that exceeds the loan limits set by the government. The maximum conforming loan amount is based on where you live. Before you apply for a mortgage, be sure to look at the current jumbo loan limits set by the Federal Housing Finance Agency for the area where you want to buy your new home.

With a jumbo mortgage, you're borrowing more money for a home than you typically would with another home loan.

Jumbo vs. conventional loans

Conventional mortgages are likely what first come to mind when you think about mortgages. A conventional loan is any mortgage loan that is not insured or backed by the government. For example, FHA or VA loans are not conventional mortgages because those loans are supported by government programs. Some conventional loans you may have heard of before include fixed-rate mortgages and adjustable-rate mortgages .

A conventional loan can be a conforming or nonconforming loan. Those terms are a way of referring to the loan limits and what you can borrow with a conventional loan. This means, technically, a jumbo loan is a conventional, nonconforming loan.

Requirements to qualify for a jumbo loan

Jumbo loans are riskier for lenders than conforming loans, so the requirements to qualify are more strict. Eligibility will vary depending on the lender, but in general you can boost your odds of getting approved for a jumbo loan by having:

  • A minimum credit score of at least 680

  • A low debt-to-income ratio

  • Cash reserves to cover six to 12 months of mortgage payments

  • A sizable down payment (Many lenders require a down payment of at least 20%. Depending on the property location,  Ally Home can offer down payments from as low as 10.01%.)

How much money do I need to get a jumbo loan?

Beyond your cash reserves and down payment, you'll want to have money on hand to cover the closing costs . Keep in mind jumbo loans tend to have higher closing costs than conforming loans.

You can use Ally Home's free mortgage calculator to get an idea of what your monthly payments will be and what you'll pay in interest.

Jumbo loan rates

Jumbo mortgage rates really aren't that different from conforming loan rates — both follow the 10-year Treasury yield as a benchmark for setting rates. It may even be possible to land a lower rate, depending on the lender and how qualified you are for a loan.

Why should you consider a jumbo loan?

Simply put, the best reason to consider a jumbo mortgage is that it can help you buy a more expensive home when other mortgage loans fall short.

If you stick with a conforming loan, you might have to resort to combining multiple mortgages to make a home purchase. Or, you may have to dig deeper into your liquid savings or investments to make up the difference between the purchase price and the loan limit. Jumbo loans eliminate those obstacles, giving you more flexibility in homebuying.

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