What Is A Jumbo Loan? (Little-Known Details Revealed)

By Melissa Cook Reviewed by Nima Vahdat Updated Nov 08, 2023
What Is A Jumbo Loan? (Little-Known Details Revealed)

A jumbo loan is a type of mortgage loan that exceeds the limits set by Government-Sponsored Enterprises (GSEs) such as Fannie Mae and Freddie Mac.

These loans are typically used to finance expensive properties, such as luxury homes or properties in high-cost areas. 

This is a type of loan that most people do not know about, but it can be very beneficial for those who qualify. Below, we will explore the details of jumbo loans and the benefits they can offer.


  • Jumbo loans are types of mortgages that exceed the loan limit set by Fannie Mae and Freddie Mac.
  • They are designed for borrowers who need to finance expensive properties, such as luxury homes or high-priced real estate.
  • Getting a jumbo loan requires a low debt-to-income ratio, a strong credit score, and a significant down payment.

Why Would Someone Need a Jumbo Loan?

Jumbo loans are often necessary for individuals or families looking to purchase a high-priced home that would exceed the standard loan limit. This could be due to the location of the property, as homes in certain areas may have significantly higher prices than others. 

For example, properties in major cities or popular vacation destinations tend to have higher price tags. In these cases, a jumbo loan can help cover the cost of the home.

Another reason someone may need a jumbo loan is if they have a high level of debt and are looking to purchase an expensive property. With a large amount of debt, it may be difficult for them to secure a traditional mortgage with lower limits. A jumbo loan offers higher borrowing limits, making it possible for them to finance their purchase.

Those who earn $250,000 to $500,000 a year but do not have the cash reserves to make a substantial down payment on an expensive home may also turn to a Jumbo Loan. This is because their income status shows lenders that they are capable of paying off the loan despite it being a large amount. 

Although this mortgage serves to finance the purchase, some cash reserves (liquid cash) may also be required by the lender to approve a jumbo loan.

Essentially, a Jumbo Loan is a legal way to acquire a higher loan amount that is not serviced by the conventional mortgage companies. 

In an interest to protect the borrower, stringent requirements are placed by the lender. This ensures mass defaults are not made on the loans, and strict criteria are laid out to provide security to the borrower’s finances.

Requirements and Considerations For Jumbo Loans

Obtaining a jumbo loan is not as simple as securing a traditional mortgage. 

As mentioned earlier, strict criteria are in place to protect both the borrower and lender. Lenders typically require a minimum credit score of 700 for jumbo loans. 

In addition, a debt-to-income ratio below 43% is usually required, meaning that the borrower’s total monthly debt payments cannot exceed 43% of their gross monthly income. For example, if someone was earning $50,000 per month, their total debt payments (including the jumbo loan) could not exceed $21,500 per month.

Another important requirement is a larger down payment. While traditional mortgages may require a down payment of 5% to 20%, jumbo loans often require at least 20% or more. In some cases, lenders may even require up to 30% or more, however, recently some lenders have started offering jumbo loans with a lower down payment of 10%.

Extensive documentation is also needed to apply for a jumbo loan. This includes bank statements, tax returns, and other financial documents to prove the borrower’s income and assets. The documentation process can be more complex than traditional mortgages due to the higher amount of money involved. 

To apply for a loan, borrowers are typically required to provide 30 days of pay stubs and W-2 tax forms for the past two years. The ability to liquidate assets may also be taken into consideration when evaluating a borrower’s financial stability.

If you’re self-employed, the income documentation requirements are even more extensive. In addition to two years of tax returns, you’ll need to provide at least 60 days of your current bank statements. 

Whether self-employed or not, it’s important to understand that this type of mortgage is not without its risks. Since jumbo loans are not backed by the government, they are considered a higher risk for lenders. This means that interest rates may be slightly higher than traditional mortgages.

How To Manage Debt For Jumbo Loan Borrowers

With the high loan amounts and strict requirements, it’s important for jumbo loan borrowers to carefully manage their debt and credit. Here are a few tips to help you stay on top of your finances.


Although this may seem like personal Finance 101, budgeting is essential for managing debt and credit when taking out a jumbo loan. Even with a higher income, it’s important to keep track of your expenses and make a plan for how you’ll spend your money. This will help you stay on top of payments and avoid accumulating more debt.

Paying off debt should be a top priority when budgeting. Look for areas where you can cut back on expenses and redirect that money toward paying off any existing debt. Creating a budget also allows you to see how much money you have left over each month, which can help guide your financial decisions. 

Expensive purchases should be carefully considered, as they may impact your ability to make timely payments on your jumbo loan. Premium interest rates can spiral out of control quickly if you’re not careful.

Debt Consolidation

With a low debt-to-income ratio being a key factor in obtaining a jumbo loan, borrowers may benefit from consolidating their debts. This involves taking out a new loan to pay off multiple existing debts, resulting in a single monthly payment with potentially lower interest rates. 

By strategically paying off debt first, your chances of being approved for a jumbo loan may improve.

When the Jumbo loan is approved, the borrower will be responsible for a premium interest rate. Consolidating other forms of debt at a lower interest rate can significantly reduce monthly payments and make it easier to keep up with mortgage payments.

Seek Expert Advice

Navigating the world of jumbo loans can be overwhelming, especially if you’re dealing with other debts as well. In addition to doing your own research and seeking information from lenders, it may be beneficial to seek expert advice from a financial advisor or debt relief specialist. 

At Americor, we understand the importance of managing your finances wisely. 

As America’s trusted source for debt relief solutions, we aim to empower you with financial knowledge that can lead to informed decisions, whether it’s about savings, investments, or managing debt.

If high-interest debts are impacting your savings, investments, and financial well-being, explore our debt relief solutions, including debt settlement and debt consolidation, to regain control of your financial future.

If your debt has become unmanageable and you have difficulty making your debt payments each month, then you should consider a free consultation call with one of our certified Debt Consultants, who can provide personalized advice tailored to your specific needs.

By taking proactive steps today, you can put an end to your financial stress and work towards a brighter financial future. 

Remember, there is always hope for debt relief, and our team of experienced professionals are ready to guide you on your journey to regaining control of your finances.

For more information on Americor’s debt relief services, contact us today to see how we can help you eliminate your debts, and get on the fast-track to becoming completely debt-free!


Melissa Cook

Melissa has a degree in English and marketing from University of California Irvine. She is a creative and accomplished content writer and editor with comprehensive experience developing rich, compelling content for a variety of websites. With her expertise in writing a broad range of content, combined with outstanding interpersonal skills and commitment to exploring innovative ideas, Melissa has done an excellent job developing content for blogs, articles, social media, and the company website. When she is not writing, Melissa spends most of her time cooking, traveling the world, and catching her favorite Broadway shows.