What defines a jumbo loan?

A jumbo loan is defined as a mortgage that exceeds the limits set by the Federal Housing Finance Agency (FHFA) for Fannie Mae and Freddie Mac, which are the two government-sponsored enterprises that buy and securitize mortgages. Because these loans are not eligible for purchase by these entities, they are considered to carry more risk for lenders. As a result, jumbo loans typically come with stricter credit requirements, larger down payment demands, and potentially higher interest rates compared to conforming loans, which are those that fall within the limits established by Fannie Mae and Freddie Mac.

Understanding this distinction is crucial for real estate professionals, as it impacts the financing options available to buyers and the overall market dynamics for properties that may be involved in jumbo financing transactions.