What is a jumbo loan?

A jumbo loan refers to a conventional loan that exceeds the conforming loan limits set by Fannie Mae and Freddie Mac, which are government-sponsored entities that provide liquidity to the mortgage market by purchasing loans. Because jumbo loans are not eligible for purchase by these entities, they pose a higher risk to lenders and therefore typically come with stricter credit requirements, higher interest rates, and larger down payment expectations compared to conforming loans.

Understanding this definition is crucial because the unique characteristics of jumbo loans can significantly impact borrowers' options in the housing market, particularly for those seeking to finance higher-value properties. The conforming loan limit varies by region, so in high-cost areas, what is considered a jumbo loan can differ significantly from areas with lower housing prices.

The other options describe different types of loans that do not fit the definition of a jumbo loan. For example, government-backed loans are typically associated with FHA or VA loans aimed at first-time homebuyers, and personal loans or loans for investment properties have distinct purposes and structures, further differentiating them from the characteristics inherent to jumbo loans.