A Guide to Jumbo Loan Limits in 2023

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.

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.

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.

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.

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.

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

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.