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Key takeaways
- Jumbo construction loans cover home builds that exceed FHFA conforming loan limits ($806,500 baseline; $1,209,750 in high-cost areas for 2025).
- They combine short-term construction financing with a permanent jumbo mortgage.
- Borrowers need strong credit, a large down payment, and significant cash reserves to qualify.
Building your dream home can be exciting, but it often comes with a big price tag. If the cost of your construction project exceeds traditional loan limits, you may need what’s known as a jumbo construction loan. These loans combine the flexibility of construction financing with the higher borrowing limits of jumbo loans, helping you cover the costs of building a home that goes beyond standard lending thresholds. Whether you’re planning a custom build in Los Angeles, CA or starting fresh in Austin, TX, understanding your financing options is key.
In this Redfin article, we’ll break down everything you need to know about jumbo construction loans, including how they work, qualification requirements, and alternatives to consider.
What is a jumbo construction loan?
A jumbo construction loan is a type of financing designed for borrowers who want to build a home that exceeds conforming loan limits set by the Federal Housing Finance Agency (FHFA).
In 2025, the baseline conforming loan limit for most U.S. counties is $806,500, with certain high-cost areas able to go up to $1,209,750. Any loan amount above that is considered a jumbo loan.
Unlike a traditional mortgage, a construction loan provides short-term funding to pay for materials, labor, and other building costs. With a jumbo construction loan, you’re combining both: financing a large-scale home build that requires borrowing beyond standard limits.
How does a jumbo construction loan work?
Jumbo construction loans typically work in two stages:
- Construction phase: The lender releases funds in stages (called “draws”) as your builder completes parts of the project. During this phase, you usually make interest-only payments on the money that has been drawn.
- Permanent financing: Once construction is finished, the loan converts into a long-term mortgage (sometimes called a “construction-to-permanent” loan). At this point, you begin making principal and interest payments like a regular mortgage.
Because these loans exceed conforming limits, lenders apply stricter requirements, including more documentation, higher credit scores thresholds, and larger down payments.
Example of a jumbo construction loan
Imagine you’re planning to build a custom home in San Francisco, CA. Your construction budget is $2 million. Since the 2025 conforming loan limit in San Francisco County is $1,149,825, your project exceeds that cap, requiring a jumbo construction loan.
Here’s how a jumbo construction loan could look:
- Loan amount: $1,600,000 (with a $400,000 down payment)
- Construction phase: The lender releases funds in stages, for example, $400,000 for land prep and foundation, $800,000 during framing and interiors, and the remainder for finishing touches. You make interest-only payments on the drawn amounts during this time.
- Conversion to mortgage: Once construction is complete, the loan automatically converts to a 30-year fixed jumbo mortgage. At this point, you begin paying principal and interest on the full $1,600,000 balance.
This example shows how jumbo construction loans help bridge the gap between short-term financing and a long-term mortgage when building a high-value home in a high-cost city like San Francisco.
Jumbo construction loan requirements
Every lender sets their own criteria, but here are the common requirements:
- Credit score: Typically 700-720 or higher
- Down payment: Often 20%–30% of the total project cost.
- Income documentation: Proof of stable, high income to support a larger loan.
- Debt-to-income ratio (DTI): Usually 43% or lower.
- Cash reserves: Lenders may require 6-12 months of mortgage payments in savings.
- Appraisal and plans: A detailed construction plan, timeline, and appraisal of the future home’s value.
Pros and cons of jumbo construction loans
Pros
- Allows you to finance larger, custom home projects.
- Provides structured funding in stages as construction progresses.
- Can combine construction financing with a permanent mortgage in one loan.
Cons
- Requires higher credit scores and larger down payments.
- Interest rates may be higher than conventional loans.
- Longer approval process with more documentation required.
How to get a jumbo construction loan
Securing a jumbo construction loan takes preparation, since lenders want to see that you can handle a high-value, complex project. Here are the key steps:
- Check conforming loan limits in your area: First, confirm whether your project exceeds FHFA loan limits. If your build is under the cap, you may not need a jumbo loan.
- Review your finances: Make sure your credit score is 700+, your debt-to-income ratio is under 43%, and you have enough savings for a 20%–30% down payment plus reserves.
- Get pre-approved: Pre-approval shows you how much you can borrow and demonstrates to builders and sellers that you’re a serious borrower.
- Choose a licensed builder: Lenders require a detailed construction plan and timeline from a reputable contractor before approving your loan.
- Submit documentation: Prepare income statements, tax returns, bank records, and construction plans. Expect a thorough underwriting process since jumbo loans carry more risk.
- Appraisal and loan approval: The lender will order an appraisal based on your project plans and estimated finished value. If approved, funds will be released in draws during construction.
>>Read: What Percentage of Your Income Should Go Toward Your Mortgage?
Alternatives to jumbo construction loans
Not every borrower needs or qualifies for a jumbo construction loan. Here are a few alternatives:
- Standard construction loan: Best if your project falls within conforming loan limits.
- Renovation loan: Good for major remodels or additions rather than building from scratch.
- Cash-out refinance: If you already own property with equity, you may be able to pull funds to finance construction.
- HELOC (Home Equity Line of Credit): Can work for smaller construction projects or as supplemental financing.
Frequently asked questions about jumbo construction loans
1. Can I use a jumbo construction loan for a second home or vacation property?
Yes, some lenders allow jumbo construction loans for second homes or investment properties, but requirements are often stricter.
2. Are interest rates higher for jumbo construction loans?
Typically, yes. Because jumbo loans carry more risk for lenders, interest rates can be slightly higher than conforming loans.
3. What happens if construction costs exceed the loan amount?
You’ll need to cover the difference out of pocket, so it’s important to build in a financial cushion when planning.
4. Do I need a licensed builder to qualify?
In most cases, yes. Lenders want assurance that a qualified contractor is overseeing the project.
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