What is a jumbo loan?

A jumbo loan is specifically defined as a mortgage that exceeds the maximum loan limits established by government-sponsored enterprises like Fannie Mae (FNMA) and Freddie Mac (FHLMC). These limits are set to ensure the loans can be sold on the secondary market, making them more accessible to buyers. When a loan amount exceeds these limits, it becomes a jumbo loan and is not eligible for purchase by these government entities, which means it typically comes with different underwriting guidelines and potentially higher interest rates. This distinction is crucial for borrowers seeking financing options that involve larger sums, especially in high-cost areas where property values may necessitate a loan amount beyond the conforming limits. Understanding this definition helps prospective borrowers to identify whether they may need a jumbo loan based on the price of the property they are considering.