What defines "jumbo loans"?

Jumbo loans are specifically defined as loans that exceed the conforming loan limits set by Fannie Mae and Freddie Mac. These limits are established yearly and vary by location, typically reflecting the median home prices in a given area. Because jumbo loans do not conform to the requirements set by these government-sponsored entities, they cannot be bought or securitized by them, making them inherently riskier for lenders. This often results in stricter credit requirements and potentially higher interest rates for borrowers, as lenders seek to mitigate the increased risk associated with larger loan amounts.

Understanding this distinction is crucial for anyone working in real estate finance, as jumbo loans cater to a segment of the market that may require financing beyond what is conventionally available through standard mortgage products.