In the most basic sense, a “jumbo loan” (also known as a “jumbo mortgage”) is exactly what it sounds like. It is a larger-than-usual mortgage loan for borrowers purchasing a more expensive luxury property or in a highly competitive real estate market. It is important to understand what jumbo loans are and what distinguishes them from conventional mortgage loans in the eyes of lenders and the government.

Conforming Loan Limits

The Federal Housing Finance Agency (FHFA) revises the conforming loan limit (CLL) every year based on home pricing trends and other economic factors. Any mortgage loan that exceeds the current CLL will be considered a jumbo loan. Those that are within the loan limits will be considered “conforming loans.”

Jumbo loans are scrutinized differently by banks and lenders because since they do not “conform” to the maximum loan limits set by the FHFA, they are not eligible to be purchased, guaranteed or securitized by Fannie Mae or Freddie Mac. Therefore, jumbo loans have unique underwriting requirements and additional tax implications to consider.

Jumbo Loan Qualification Standards

Because jumbo loans require a more complex underwriting process and they are for higher amounts without government backing, they will be harder to qualify for than conventional conforming loans. Lenders and the private banks that purchase and hold most jumbo loans are assuming more risk. Therefore, loan qualifications and approvals will fall under more scrutiny. The borrower will need to be in great financial standing, have a high credit rating and be able to show that they are a low-risk borrowing candidate who isn’t likely to default on their large mortgage loan. If you are a jumbo borrower, you will want to talk to your mortgage advisor (and perhaps your financial advisor) to make sure all your ducks are in a row.

Market Factors

As the real estate market recovered from the Great Recession, home prices naturally went up. They have risen significantly in recent years with strong seller’s market conditions. And despite the general economic challenges of 2020, real estate has remained extremely active with one of the most extreme seller’s markets on record. Interest rates have been at historic lows to give borrowers plenty of buying power and create plenty of demand. Meanwhile, home prices continue to rise as housing inventory remains low.

These market conditions have led to the need for more jumbo loans, especially in an expensive home market like San Diego County (and all of Southern California, for that matter). In fact, conforming loan limits in higher-price regions are subject to higher CLLs than the American average. They are based on the median price range of the county. Of course, San Diego has a high median and thus higher conforming loan limits.

Current Conforming Loan Limits

            • Standard CLL in 2020: $510,400
            • New Standard CLL as of January 1, 2021: $548,250


            • San Diego CLL in 2020: $701,500
            • New San Diego CLL as of January 1, 2021: $753,250

To download a full list of FHFA 2021 conforming limits for every county in the country, click here.

It’s important to note that in California, the conforming loan limits can vary by county. The prices listed above are also for one-unit (single-family) properties. Multi-unit properties and complexes will be subject to higher CLLs.

Comprehensive San Diego Mortgage Loan Services

If you are applying for a home loan and looking to acquire a mortgage that exceed the current conforming loan limit, then you will need to know the different qualification standards and other implications of your jumbo loan. To get started on your mortgage pre-approval process in San Diego and to get all your jumbo mortgage questions answered by local mortgage experts, call Transparent Mortgage today at (619) 701-3906 or email me at beau@tspmortgage.com

Beau Hodson

Beau Hodson

About the Author Since 2003, Beau has been a mortgage professional and is a leading mortgage broker and lender in San Diego. As Founder and Senior Mortgage Advisor at Transparent Mortgage, he is truly committed to serving the needs of his clients and raising industry standards for integrity and transparency.