What defines a jumbo loan?

A jumbo loan is specifically defined as a type of conventional loan that exceeds the conforming loan limits established by the Federal Housing Finance Agency (FHFA). Since it does not adhere to these limits, it cannot be purchased or guaranteed by government-sponsored entities like Fannie Mae or Freddie Mac. This characteristic makes jumbo loans necessary for borrowers seeking financing for higher-priced properties.

Understanding the distinction of jumbo loans is crucial for real estate professionals, as these loans often come with different requirements, including stricter credit scores, larger down payments, and potentially higher interest rates, compared to conforming loans. This makes awareness of jumbo loans essential when advising clients or assessing financing options for properties exceeding the conforming limits.