A Guide to Jumbo Loan Limits in 2023

Jumbo loan limits are the maximum amount you can borrow when taking out a mortgage. These usually depend on the lender, so make sure to shop around and compare options.

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A jumbo loan or a jumbo mortgage is a financing option that exceeds the baseline amount set by the Federal Housing Finance Agency (FHFA). This non-conforming loan type is designed to finance high-value properties and homes in competitive real estate markets, such as California or New York.

Jumbo loan limits vary depending on the mortgage lender and location. In most cases, you can take out a jumbo loan between $2 million and $3 million. Look for local lenders specializing in your desired location’s housing market to get the highest possible limit for your needs and circumstances.

Although jumbo loans can help you finance luxury properties, they tend to have stricter guidelines and unique tax implications. Thus, understanding jumbo loans and their loan limits per state is essential before pursuing an application.

Key Takeaways

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Jumbo loans can finance expensive properties, including primary residences, luxury homes, high-priced vacation homes and investment properties.

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For 2023, the FHFA set the conforming loan limits at $726,200 in most counties and $1,089,300 in high-cost areas as well as Alaska, Hawaii, Guam and the U.S. Virgin Islands.

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Large cash reserves, an excellent credit score and a lower debt-to-income (DTI) ratio, can increase your likelihood of qualifying for a jumbo loan.

Jumbo Loan Limits in 2023 by State

Jumbo loans are a type of conventional loan that doesn't conform to guidelines established by the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac). For this reason, they are also known as non-conforming loans.

For 2023, the baseline loan limit for a one-unit property in most of the country is $726,200. That’s $79,000 higher than the previous year’s $647,200. In high-cost areas, the loan limit was expanded to $1,089,300, or 150% of $726,200. Similarly, those outside of the continental U.S. in locations like Alaska and Hawaii have a loan limit of $1,089,300.

The FHFA sets limits annually to meet rising property costs. Conventional loans that adhere to these rules are called conforming loans and are purchased by Fannie Mae and Freddie Mac. These government-sponsored agencies buy mortgages from banks and other financial institutions to circulate money through the loan system and make homeownership more affordable.

Because jumbo loans exceed conforming loan limits, they can’t be purchased or guaranteed by Fannie Mae and Freddie Mac. As a result, jumbo loans have stringent rules and varying requirements.

The market for jumbo loans is smaller than the market for conforming loans. It’s in your best interest to shop around for mortgage lenders and banks that offer jumbo loans to find the best option for your unique needs and situation.

How Do Jumbo Loans Work?

Jumbo loans are designed for borrowers who have their sights set on properties that are too expensive for conforming loans. Whether you want to buy a luxury home or an average house in a competitive market, a jumbo loan can help you finance the property.

Given the substantial risk, lenders are stricter with jumbo loan requirements regarding credit score, income and debt-to-income ratio. They may also require large cash reserves and a higher down payment.

Because jumbo loans are bigger and have a rigorous verification process, expect higher costs and additional fees when you close your loan.

Difference Between Jumbo Loans & Conventional Loans

There are key differences between jumbo loans and conventional loans to help you determine which option is best suited for your needs. Whereas conventional loans conform to the loan limits set by the FHFA, jumbo loans exceed them. Jumbo loans also have a higher credit score and down payment requirements than conventional loans. s.

Jumbo vs. Conventional Mortgage Loans
  • Feature
    Jumbo Loans
    Conventional Loans
  • Loan Limits

    Exceed conforming loan
    limits set by the FHFA

    $726,200 for most of the
    U.S.; $1,089,300 for
    high-cost areas

  • Interest Rates

    5.25% – 5.50%

    6.25% – 6.375%

  • Mortgage Insurance

    No, unless the down payment
    is less than 20%

    Yes, for a down payment less
    than 20%

  • Credit Score Requirements

    Minimum credit score of 700

    Minimum credit score of 620

  • Minimum Down Payment

    10%

    3%

  • Maximum DTI

    43% or lower

    45%

  • Closing Costs

    Higher than conventional
    loans

    3% – 5% of the loan amount

Requirements to Get a Jumbo Loan

To qualify for a jumbo loan, you need to meet the lender’s minimum requirements. These include a credit score of at least 700 and a DTI ratio of 43% or lower; you need to check the typical requirements for jumbo loans to see if you can qualify for one. You also need enough cash reserves to cover 12 months of mortgage payments.

  • Credit score: Lenders look at your credit score to gauge your repayment ability. They often require a minimum credit score of 700 for jumbo loans. Some lenders accept a credit score of 680, but the tradeoff is higher interest rates.
  • Income: Jumbo loans are best for borrowers who can afford million-dollar homes but not in cash. Thus, you need to be in a high-income bracket to qualify for a jumbo loan.
  • Debt-to-income ratio: Your DTI ratio represents the portion of your income that goes toward your debts. Typically, jumbo loan lenders want to see a DTI ratio of 43% or lower. Some lenders may be more flexible if you have a sizable amount of reserves.
  • Loan-to-value (LTV) ratio: The LTV ratio measures the loan amount relative to the property's appraised value. Lenders also consider your LTV ratio to determine the risk they’re taking before approving a mortgage. Often, you need an LTV ratio of 80% or lower to qualify for a jumbo loan.
  • Down payment: Your down payment is a portion of the home’s purchase price that you pay at closing. How much you put down may vary depending on your lender. While many lenders require at least 20% down for a jumbo loan, some allow a 10% or 15% down payment.
  • Cash reserves: Jumbo loans require large cash reserves to protect lenders; this is done in case you default on your payments. Jumbo loan lenders are more likely to extend funds to you if you have enough cash reserves in the bank to cover at least 12 months of mortgage payments.

Pros & Cons of Jumbo Loans

Before getting a jumbo mortgage, it’s important to weigh its advantages and disadvantages to determine if it’s the right option for you.

Pros & Cons of Jumbo Loans

loanPro
Pros
  • Finance your dream home: With a jumbo loan, you can access high-value properties.
  • Low minimum down payment: It’s possible to take out a jumbo loan with at least 10% down.
  • Flexible terms: You can get a fixed- or adjustable-rate jumbo loan with a variety of terms.
  • Competitive rates: Interest rates for jumbo loans can be competitive, if not lower than some conforming loan rates.
loanCon
Cons
  • More risk: Jumbo loans are not guaranteed by Fannie Mae and Freddie Mac, so lenders consider them riskier than conforming loans.
  • Stringent requirements: You need excellent credit, a lower DTI ratio and large cash reserves to qualify for a jumbo loan.
  • Additional appraisals: Lenders tend to require additional appraisals to confirm the property’s actual value, which can be expensive.
  • Higher closing costs: Expect higher closing costs and fees if you finance a property with a jumbo loan.

How to Shop for Jumbo Loans

Jumbo loans are a financing method for properties with a higher price tag. Below, MoneyGeek outlined six important steps you need to take when getting a jumbo loan.

1

Determine jumbo loan limits

Jumbo loan limits are greater than the baseline loan limit set by the FHFA for conforming loans — $726,200 in most counties and $1,089,300 in high-cost areas for a single-unit property in 2023.

2

Research home prices

Knowing the local housing market in your desired location is essential for your journey to home ownership. It can help you fine-tune your budget and submit an offer.

3

Boost your credit score

It’s smart to improve your credit score before pursuing a jumbo loan application. If possible, you want a score of 700 or higher to increase your chances of getting a jumbo loan and avoiding higher interest rates.

4

Save up for a down payment

Saving up for a down payment is critical in achieving homeownership. Most jumbo loan lenders require a 20% down payment, but some offer flexibility and allow a minimum down payment of 10%.

5

Shop and compare lenders

It’s important to remember that the jumbo loan market is smaller than the market for conforming loans. You need to do your due diligence in shopping around and comparing lenders to find the best option for your particular needs and situation.

6

Go through the application

Once you’ve decided on a lender, you can submit a loan application. Make sure to prepare all the documents the lender requires, including pay stubs, tax returns, bank statements and more.

Frequently Asked Questions About Jumbo Loan Limits

Getting a jumbo loan can be challenging, especially since lenders have stricter requirements for them. To help ease the process, MoneyGeek answered some frequently asked questions about jumbo loans.

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