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Jumbo Loans: Pros and Cons for Homebuyers

This page updated and accurate as of May 22, 2025

If you’re buying a high-priced home, especially in a competitive real estate market, chances are you’ve come across the term “jumbo loan.” These types of mortgages go beyond the limits set by Fannie Mae and Freddie Mac, which means they come with their own rules, benefits, and risks.

In this post, we’ll break down:

  • What a jumbo loan is

  • The pros and cons of using one

  • Low down payment and piggyback loan options

  • How to determine if it’s the right choice for you

📌 What Is a Jumbo Loan?

A jumbo loan is a mortgage that exceeds the conforming loan limits set annually by the Federal Housing Finance Agency (FHFA). For 2025, the baseline conforming loan limit is $806,500, though this can be higher in expensive markets in California, Florida, etc.

If your loan amount is above that threshold, you’ll need a jumbo financing, which is not backed by Fannie Mae or Freddie Mac.

✅ PROS of Jumbo Loans

🔹 1. Access to High-Value Homes

  • Why it matters: Jumbo loans allow you to finance luxury properties or homes in high-cost areas without needing to bring a massive cash down payment.

  • Ideal for buyers in expensive markets like San Francisco, Chicago, Seattle, or Los Angeles.

🔹 2. Competitive Interest Rates

  • Contrary to popular belief, jumbo loans can offer interest rates that are comparable to, or even lower than, conforming loans—especially for highly qualified borrowers.

  • Strong credit and a low debt-to-income ratio (DTI) help you secure the best rates.

🔹 3. One Loan vs. Multiple Mortgages

  • Jumbo loans allow you to finance the full purchase under a single mortgage, instead of combining multiple smaller loans to cover the cost.

🔹 4. Flexibility with Terms

  • You can choose from a wide range of products: fixed-rate, ARM (adjustable-rate), and interest-only options in some cases.

  • This flexibility allows borrowers to tailor the loan to their financial strategy.

🔹 5. No Private Mortgage Insurance (PMI) for most Jumbo Mortgages

  • Many jumbo loan products do not require PMI, even with less than 20% down, unlike conventional loans.

  • This can result in significant monthly savings.

❌ CONS of Jumbo Loans

⚠️ 1. Higher Qualification Standards

  • Lenders and banks see jumbo loans as more riskier, so they set stricter requirements:

    • Minimum credit score: Typically 680–720 especially when financing over 80% loan to value

    • Lower DTI ratio: Often required to be under 45%

    • Cash reserves: Depending on the loan amount, you may need to document 3 to 12 months of reserves in the bank or retirement account

⚠️ 2. Larger Down Payments (Usually)

  • Traditional jumbo loans usually require at least 10–20% down.

  • However, newer low down payment options (as little as 5% down) are becoming more common through niche lenders.

⚠️ 3. Harder to Refinance

  • Refinancing a jumbo loan can be more complex and time-consuming, particularly during economic uncertainty or rising interest rate environments.

⚠️ 4. Limited Lender Options

  • Not all lenders offer jumbo loans, and terms can vary widely between banks, credit unions, and private lenders.

⚠️ 5. Stricter Appraisal and Underwriting

  • Homes purchased with jumbo loans often go through multiple appraisals or in-depth underwriting reviews, which can slow the closing process. This is especially true on higher loan amounts that exceed $3mil.

💰 Low Down Payment Jumbo Loan Options

Gone are the days when you needed 20% down to get a jumbo mortgage. Today, select lenders offer jumbo loans with as little as 5% or 10% down, often with no PMI and competitive rates.

✳️ 5% Down Jumbo Loan

  • Loan amounts up to $2 million (depending on location)

  • Credit score of 680+

  • May require strong income and assets

  • Some lenders waive PMI

✳️ 10% Down Jumbo Loan

  • Loan amounts up to $3 million

  • Credit score of 660–700+

  • Easier qualification than 5% options

  • More favorable interest rate

These loans are especially useful for:

  • Buyers with high income but limited liquid savings

  • Professionals (doctors, tech workers, business owners) early in their careers

  • Homebuyers in high-cost housing markets

🔀 What About Piggyback Combo Loans?

Piggyback loans are a clever way to avoid jumbo loans altogether or reduce the amount borrowed under a jumbo mortgage.

🔗 What Is a Piggyback Loan?

It’s a combo loan structure, typically using:

  • First mortgage: At or just under conforming loan limit (e.g., $806,500)

  • Second mortgage/HELOC: Covers the rest of the purchase price

  • Buyer’s down payment: Usually 5%-10%

This structure is often referred to as an 80/15/5 or 80/10/10 loan: Here is an example of the 90% financing option:

  • 80% first mortgage

  • 10% second mortgage (HELOC or fixed 2nd mortgage)

  • 10% down payment

🟢 Pros of Piggyback Loans

  • Helps you stay under conforming loan limits

  • Avoid PMI without putting 20% down

  • Second loan (often a HELOC) is flexible and may be interest-only

🔴 Cons of Piggyback Loans

  • Two mortgage payments

  • HELOC interest rates can be variable and rise over time

  • More complex closing process and some added closing costs

🔍 Jumbo Loan or Piggyback: Which Is Better?

 

Criteria Jumbo Loan Piggyback Loan
Loan Simplicity ✅ Single loan ❌ Two loans to manage
PMI Avoidance ✅ Often none ✅ Avoided with 80/10/10
Interest Rate Stability ✅ Fixed/ARM options ❌ HELOC may be variable
Qualification Flexibility ❌ Stricter requirements ✅ May be easier to qualify
Down Payment Flexibility ✅ As low as 5% ✅ 5%-10% typically

👇 Who Should Consider a Jumbo Loan?

You may benefit from a jumbo loan if:

  • You’re buying a home above $806,500 (or local 2025 Conforming loan limits)

  • You have strong credit, stable income, and good financial reserves

  • You prefer one single mortgage over managing two loans

  • You want to avoid PMI with a lower down payment

On the other hand, consider a piggyback loan if:

  • You want to stay within conforming loan limits

  • You have a moderate down payment (~5%)

  • You prefer to separate part of your loan into a flexible HELOC that you can possible draw additional funds from later

📘 Final Thoughts

A jumbo mortgage can be a powerful tool for purchasing your dream home—especially in high-cost markets. While they come with stricter requirements, new low down payment programs and creative financing like piggyback loans make them more accessible than ever.

Before deciding, compare rates, closing costs, qualification criteria, and weigh the pros and cons carefully with a trusted mortgage advisor. Connect with us today to review your option by calling or just submit the Quick Contact Form below.