A jumbo loan is a mortgage that exceeds the conforming loan limits established each year for loans that Fannie Mae and Freddie Mac will purchase. Because they are too large to be sold to those agencies, jumbo loans carry more risk for lenders.
As a result, jumbo loans typically require stronger credit, larger down payments, lower debt-to-income ratios, and more cash reserves than conforming loans. They are used to finance higher-priced homes and are common in expensive markets.
The conforming limit changes annually and is higher in designated high-cost areas. Buyers just above the limit sometimes make a larger down payment to bring the loan under the threshold and qualify for a conforming loan instead.