What characterizes a jumbo loan?

A jumbo loan is characterized as a mortgage that exceeds the limits set by government-sponsored entities such as Fannie Mae and Freddie Mac. These limits are applicable to loans that can be sold to these entities in the secondary mortgage market. Because a jumbo loan exceeds these limits, it does not conform to the standards established for conventional loans. This distinction is significant because jumbo loans typically come with stricter credit requirements, higher interest rates, and larger down payment requirements due to the higher risk lenders take on with these types of financing.

In contrast, the other options focus on characteristics that do not accurately define a jumbo loan. For instance, standard loan limits set by Fannie Mae and Freddie Mac characterize conventional loans rather than jumbo loans. A description that narrows the focus of a loan solely to luxury properties does not encompass the broader application of jumbo loans, which can be used for a variety of real estate. Lastly, the repayment term aspect of a loan does not inherently categorize it as a jumbo loan, as jumbo loans can have various repayment terms, just like any other mortgage.