A jumbo loan is a type of mortgage loan that is used to finance a higher-priced home. It is called a “jumbo” loan because it exceeds the loan limits set by government-backed loan programs like Fannie Mae and Freddie Mac. These loan limits vary by location and are typically set at a certain amount, such as $548,250 in most areas of the United States in 2021.

So, if you’re looking to buy a home that is more expensive than the loan limits set by Fannie Mae and Freddie Mac, you would need a jumbo loan. Jumbo loans are designed to help borrowers finance larger homes that may require higher loan amounts.

Since jumbo loans involve larger loan amounts, they often have slightly different requirements compared to traditional loans. Lenders may require a higher credit score, a larger down payment, and more extensive documentation to qualify for a jumbo loan. This is because lenders take on more risk when providing larger loans.

It’s worth noting that interest rates on jumbo loans may also be slightly higher compared to conventional loans. This is because lenders need to account for the increased risk associated with larger loan amounts.

In summary, a jumbo loan is a type of mortgage loan that is used to finance homes that exceed the loan limits set by government-backed loan programs. They are designed for borrowers looking to purchase higher-priced homes and typically have different requirements and potentially higher interest rates compared to traditional loans.