A jumbo loan is needed for a mortgage that exceeds the conforming loan limit set by the FHFA. For most of the United States, the loan limits for one-unit properties in 2023 is $726,200. For areas where the local median home value exceeds the loan limit (Alaska, Hawaii, Guam, and the U.S. Virgin Islands), the maximum loan limit may be up to $1,089,300. If you need to borrow more than that for a home purchase, a jumbo loan is one way to do it.

Since jumbo loans won’t be guaranteed by Fannie Mae or Freddie Mac, they’re generally considered riskier. Lenders will probably have stricter qualifying requirements for them. Each lender can decide what their requirements are but be prepared to need a better credit score (likely into the 700’s), lower debt-to-income ratio, and a higher down payment (usually at least 15%) to qualify.

The main difference is the amount of the loan. Both are available in either variable or set interest rates. Jumbo loans may have slightly higher interest rates, but depending on your lender, they may be very competitive to rates offered on conforming loans. And since the loans are larger and there may be extra qualifications to get a jumbo loan, there may be additional fees when the loan closes.

Jumbo loans are best used by individuals with high income, a great credit score, a good down payment who are looking to purchase an expensive primary, vacation, or investment home.