Jumbo Loan Limit: Annual Changes And What To Expect

Jumbo loans are a type of mortgage that exceeds the baseline amounts set by the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac). The Federal Housing Finance Agency (FHFA) publishes annual conforming loan limit values that apply to all conventional loans delivered to Fannie Mae. These limits vary by county and are based on median home prices. The FHFA has increased the conforming loan limits for 2025, with the upper limit ranging from $806,500 to $1,209,750 depending on location. As the conforming loan limits change annually, the threshold for a jumbo loan also changes each year.

The Federal Housing Finance Agency (FHFA) publishes annual conforming loan limit values

The FHFA adjusts the baseline CLL value each year to reflect changes in the average U.S. home price. The Housing and Economic Recovery Act (HERA) mandates this annual adjustment. The FHFA publishes its FHFA House Price Index (FHFA HPI) report, which includes statistics on the percentage increase in the average U.S. home value over the previous four quarters. For instance, the FHFA HPI report for the third quarter of 2024 showed that house prices increased by 5.21% between the third quarters of 2023 and 2024.

The conforming loan limit values for 2025 were announced by the FHFA on November 26, 2024. In most of the United States, the 2025 CLL value for one-unit properties is $806,500, a $39,950 or 5.2% increase from 2024. However, it is important to note that conforming loan limits vary by county. While some counties have a standard limit, certain high-cost areas, such as Washington, D.C., and specific California counties, have higher thresholds. For 2025, the ceiling for conforming mortgage limits in these high-cost areas is $1,209,750, or 150% of the standard limit.

The FHFA has consistently announced the maximum conforming loan limits for the upcoming year towards the end of the current year. For example, the FHFA announced the conforming loan limit values for 2025 in November 2024, for 2024 in November 2023, and so on. These annual announcements allow individuals planning to take out mortgage loans in the following year to be aware of the loan limit values and make informed financial decisions.

Jumbo loans are considered non-conforming loans

Jumbo loans are typically sought by high-income earners looking to buy expensive homes. They are designed for borrowers who need loans higher than the government-set limits. These loans often have stricter qualification rules and require a larger down payment than conforming loans. The minimum down payment varies by lender but is usually at least 10%, and in some cases, can go up to 20% or even higher. Jumbo loans also tend to have higher credit score requirements, with a minimum score of 700 or higher.

The debt-to-income (DTI) ratio is another important factor considered by lenders for jumbo loans. A low DTI ratio is favourable, usually around 43% to 45% or less. Lenders may also want to see a significant cash reserve in the borrower's accounts to ensure they can cover the mortgage payments. This reserve typically needs to be enough to cover between six to twelve months' worth of mortgage payments.

Jumbo loans can be used to finance primary residences, second homes, vacation homes, or investment properties. They offer competitive interest rates, and in some cases, the rates can be lower than those of conforming loans. However, it is important to note that jumbo loans are not backed by government agencies, and mortgage insurance is typically not an option for them.

The FHFA designates certain high-cost areas

The Federal Housing Finance Agency (FHFA) designates certain high-cost areas as "high-cost areas", allowing for higher loan amounts without requiring borrowers to meet the criteria for a jumbo loan. The FHFA defines a high-cost area as "areas where 115% of the local median home value exceeds the baseline loan limits". In other words, high-cost areas are where homes are significantly more expensive compared to the rest of the nation.

The FHFA determines conforming loan limits based on national housing trends. The baseline limit adjusts annually under the Housing and Economic Recovery Act of 2008 (HERA). For 2025, the FHFA raised the maximum conforming loan limit for a single-family property to $806,500 from $766,550 (in 2024). In certain high-cost areas, the ceiling for conforming mortgage limits is 150% of that limit, or $1,209,750 for 2025. Many of these high-cost regions are in states like California, New York, Florida, Massachusetts, and Maryland.

In addition to the high-cost areas designated by the FHFA, there are also four statutorily-designated high-cost areas: Alaska, Hawaii, Guam, and the US Virgin Islands. In these areas, the conforming loan limits are set at the national ceiling established by the FHFA, which is $1,209,750 for one-unit properties. It is important to note that the FHFA may increase conforming loan limits again for the following year, so borrowers should stay informed about the latest loan limits.

The FHFA's designations of high-cost areas are significant because they impact the loan options available to homebuyers in these regions. In high-cost areas, homebuyers may be able to obtain a conforming loan with a higher loan amount without having to meet the more stringent requirements of a jumbo loan. This provides homebuyers in these expensive markets with more flexibility and potentially more favourable terms compared to a jumbo loan.

Jumbo loans are manually underwritten

Jumbo loans are a type of mortgage used to finance properties that are too expensive for a conventional conforming loan. The Federal Housing Finance Agency (FHFA) sets the maximum amount for a conforming loan, which is \$806,500 in most counties for 2025. Homes that exceed this limit require a jumbo loan. Jumbo loans are considered non-conforming loans because they don't conform to the limits set by the FHFA.

Qualifying for a jumbo loan tends to be more difficult than for a conventional loan. The underwriting criteria for jumbo loans are usually stricter because they are larger and riskier for lenders. Jumbo loans often require manual underwriting, which means that a person will complete the process themselves rather than using a computer. The lender will carefully review the borrower's financial details, including full tax returns, W-2s, 1099s, bank statements, and information on any investment accounts.

The credit score required for a jumbo loan is typically higher than for a conforming loan, with a minimum score of 700 required by most lenders. Additionally, lenders look for a low debt-to-income (DTI) ratio, usually around 43-45% or less. Down payment requirements for jumbo loans are also higher, typically ranging from 10% to 30%. Many lenders will also want to see a sizable cushion of cash in the borrower's accounts, enough to cover six to twelve months' worth of mortgage payments.

Jumbo loans are available with either a fixed or adjustable interest rate. The interest rates for jumbo loans have been relatively high, and they are influenced by the borrower's credit profile and Federal Reserve benchmarks. Jumbo loans are considered riskier for lenders because they cannot be guaranteed or resold to Fannie Mae or Freddie Mac, the government-sponsored enterprises that buy and resell most U.S. mortgages. As a result, jumbo loans generally remain on the lenders' own books, and borrowers may be subject to greater scrutiny and higher borrowing costs.

Jumbo loans come in a variety of terms and repayment schedules

Jumbo loans are mortgages that exceed the baseline amounts set by the Federal Housing Finance Agency (FHFA) and cannot be purchased, guaranteed, or securitized by Fannie Mae or Freddie Mac. Jumbo loans come in a variety of terms and repayment schedules. They can be 30-year loans or shorter-term loans. Jumbo loans are available with either a fixed interest rate or an adjustable rate. The fixed interest rates are usually for 15 or 30 years, while the adjustable-rate mortgage (ARM) has a fixed rate for the first seven years and then adjusts every six months. The interest rates on jumbo loans are influenced by individual factors and Federal Reserve benchmarks.

The qualification requirements for jumbo loans are typically more stringent than those for conforming loans. The minimum credit score required for a jumbo loan depends on the mortgage lender and loan terms but is usually at least 700. The debt-to-income (DTI) ratio is another critical factor considered by lenders, with a lower ratio being more favourable. Many lenders look for a DTI ratio of no higher than 43%.

The down payment requirements for jumbo loans have become more flexible over the years, with minimum down payments starting at 10%. However, depending on the lender and the borrower's financial situation, the down payment could go up to 20% or even 25% to obtain the lowest advertised interest rate. It is not uncommon for lenders to request that borrowers demonstrate sufficient cash reserves to cover up to one year's worth of mortgage payments.

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