Key takeout
Jumbo construction loans cover home builds that exceed FHFA’s conformance loan limit ($1,209,750 in high-cost regions in 2025). They combine short-term construction funds with permanent jumbo mortgages. Borrowers need strong credit, large down payments and considerable cash reserves to qualify.
Building a dream home is exciting, but often comes with a large price tag. If the cost of a construction project exceeds traditional loan limits, you may need something called a jumbo construction loan. These loans combine the flexibility of construction financing with the higher borrowing limits on jumbo loans to help cover the cost of building a home that exceeds the standard lending threshold. Whether you’re planning a custom build in Los Angeles, California, or starting a new one in Austin, Texas, it’s important to understand your fundraising options.
In this Redfin article, we’ll break down everything you need to know about Jumbo construction loans.
What is a Jumbo Construction Loan?
Jumbo construction loans are a type of financing designed for borrowers who want to build homes that exceed the conforming loan limit set by the Federal Housing Finance Agency (FHFA).
In 2025, the baseline-compliant loan limit for most US counties is $806,500, with certain high-cost areas being able to reach $1,209,750. The amount of loan considered a jumbo loan.
Unlike traditional mortgages, construction loans provide short-term funding to pay for materials, labor and other construction costs. With Jumbo construction loans, you combine both. Financing for large-scale home builds that require you to borrow beyond standard limits.
How do Jumbo construction loans work?
Jumbo construction loans usually work in two stages.
Construction Phase: The lender releases funds in stages (called “draws”) once the builder completes a portion of the project. At this stage, you will usually pay interest only on the money withdrawn.
Permanent Financing: Once construction is complete, the loan is converted into a long-term mortgage (sometimes called a “construction-to-comprehensive” loan). At this point, you start making principal and interest payments like you would on a regular mortgage.
Because these loans exceed the conformance limit, lenders apply more stringent requirements, such as more documents, higher credit score thresholds, and more depreciation payments.
Examples of jumbo construction loans
Imagine you’re planning to build a custom home in San Francisco, California. Your construction budget is $2 million. San Francisco County’s 2025 conforming loan limit is $1,149,825, so the project exceeds that limit and requires a Jumbo construction loan.
Here’s what Jumbo construction loans look like:
Loan amount: $1,600,000 (with $400,000 down payment) Construction phase: Lenders release funds in stages. For example, $400,000 for land preparation and funds, $800,000 for framing and interiors, and the rest is an attempt at finishing. During this period, you will only pay interest on the amount withdrawn. Conversion to Mortgage: Once construction is complete, the loan will automatically be converted to a 30-year fixed jumbo mortgage. At this point, you’ll start paying your $1,600,000 balance in full.
This example shows how Jumbo construction loans can help bridge the gap between short-term financing and long-term mortgages when building high-value homes in high-cost cities like San Francisco.
Jumbo Construction Loan Requirements
All lenders set their own standards, but here are the general requirements.
Credit score: Usually down payments of 700-720 or higher: 20%-30% of the total project cost. Income Document: Proof of stable, high income that supports larger loans. Debt-to-Income Ratio (DTI): Usually 43% or less. Cash reserve: Lenders may require a 6-12-month mortgage payment for savings. Evaluation and Planning: Detailed construction plans, timelines and assessments of future home values.
Pros and cons of jumbo construction loans
Strong Points
You can fund larger custom home projects. As construction progresses, it provides structured funding in stages. Construction funds can be combined with a permanent mortgage with a single loan.
Cons
You need a higher credit score and more down payments. Interest rates can be higher than traditional loans. It requires a long approval process that requires more documentation.
How to get a Jumbo Construction Loan
To secure a Jumbo construction loan, you need to prepare for preparation as you want to make sure your lender can handle complex, high-value projects. This is the important step:
Please check the conforming loan restrictions in your area. First, check if the project exceeds the FHFA loan limit. If your build is below the upper limit, you may not need a jumbo loan. Financial Confirmation: Make sure your credit score is above 700 and your debt-to-income ratio is below 43%, and there is plenty of savings for a down payment and reserve of 20%-30%. Get Pre-Approval: Pre-Approval shows how much you can borrow and show the builder or seller that you are a serious borrower. Please select the license builder. Lenders need a detailed construction plan and timeline from a reputable contractor before approving the loan. Submit Document: Prepare income statements, tax returns, bank records, and construction plans. Jumbo loans have more risks, so expect a thorough underwriting process. Evaluation and loan approval: The lender orders the assessment based on the project plan and estimated completion value. If approved, funds will be released into a draw during construction.
>>Read: What percentage of your income should go towards your mortgage?
Jumbo Construction Loan Replacement
Not all borrowers need or qualify for a Jumbo construction loan. Here are a few options:
Standard Construction Loan: Perfect if your project is within the limits of a conforming loan. Renovation loan: Suitable for major modifications and additions rather than building from scratch. Cash-out refinance: If you already own property with assets, you may be able to withdraw funds to fund your construction. HELOC (Home Equity Credit Line): Can accommodate small construction projects and supplementary financing.
Frequently Asked Questions about Jumbo Construction Loans
1. Can I use a jumbo construction loan for my second home or holiday property?
Yes, some lenders allow jumbo construction loans for second homes and investment properties, but the requirements are often more stringent.
2. Are the interest rates on Jumbo construction loans higher?
Usually, yes. Jumbo loans pose more risk to lenders, so interest rates can be slightly higher than conforming loans.
3. What happens if the construction costs exceed the loan amount?
It is important to build a financial cushion when planning, as you need to cover the differences from your pockets.
4. Do I need a license builder to qualify?
In most cases, yes. The lender wants to ensure that a qualified contractor is overseeing the project.
