Jumbo Loans

What is a jumbo loan?

Jumbo loans come in both fixed-rate and variable-rate loans just like traditional mortgages, and they are often used when you are looking to purchase a property that is more than the traditional loan limit for the area the property is located. The limit for a traditional mortgage in most of the United States is about $647,200 in 2022. For more expensive metropolitan areas, like San Francisco, New York, and Washington DC. the 2022 traditional mortgage limit is about $970,800.

What are common jumbo loan requirements?

Typically, jumbo loans are reserved for affluent borrowers who have larger incomes and higher credit scores. Here are some of the requirements of a jumbo loan in much greater detail.
Higher credit scores: To qualify for a jumbo loan, lenders are going to need a much higher minimum credit score requirement than for a traditional mortgage. The average credit score of borrowers who qualify for a jumbo loan is around 740. A credit score of 740 is considered by some lenders to be a very good or excellent credit score. You may be able to qualify for a jumbo loan with a lower credit score, however, lenders are going to want to see an exceptionally high income with very little existing debt.
Lower debt-to-income ratios: Lenders may look at your debt-to-income ratio closely to determine whether or not you would be able to keep up on the monthly payments that a jumbo loan would require. They may hold you to a higher standard than if you were seeking a traditional mortgage when it comes to your debt-to-income ratio.
Larger down payments: If you are seeking a jumbo loan, you may have to come up with a minimum down payment of at least 10% or a down payment of 20% or more to appease the lender. In addition to the down payment, lenders may want to see enough cash reserves to cover up to 12-months of mortgage payments. Keep in mind that a down payment of 20% on a home that is selling for 1.5-million dollars is $300,000. This is why jumbo loans are typically reserved for borrowers who are already somewhat wealthy.
Although the minimum requirements for qualifying for a jumbo loan vary by lender, you can count on one fact. You can count on the fact that the requirements are going to be much higher and more difficult to meet when compared to trying to qualify for a traditional mortgage.

Can I qualify for a jumbo loan?

For the best chances of qualifying for a jumbo loan, in addition to a high enough income to meet the higher monthly payments, you should have little to no existing debt and a credit score of 740 or higher. Some lenders may be willing to work with borrowers with lower credit scores since 740 is the average credit score of a jumbo loan, however, in order to qualify, lenders may then want to see an extremely low debt-to-income ratio with a lot of money coming in each month. Qualification requirements can vary depending on the lender. If you are considering a jumbo loan you should consult a professional to determine if you qualify or what you need to do to qualify.

What is considered a jumbo loan?

A jumbo loan is a home mortgage that is so large that it cannot be insured through the federal government through programs like Fannie Mae and Freddie Mac. Jumbo loans are used when you are looking to purchase a home that is more expensive than the conventional loan limit. Conventional loan limits can change every year, however, for 2022, the conventional loan limit throughout the United States is around $647,200 and $970,800 in high-cost metropolitan areas like New York City, Chicago, and Los Angeles.

Jumbo loans vs conventional loan differences:

The only real difference between jumbo loans and conventional loans is the interest rate and the size of the loan. A jumbo loan is sought after when someone is looking to purchase a home that is over the conforming loan threshold for the area they live. For 2022, the maximum conforming loan amount for a home mortgage is around $647,200 for most of the country. For more expensive metropolitan areas, the traditional mortgage limit is about $970,800. When it comes to interest rates, sometimes conventional loans may come with a lower rate, and sometimes they may come with a higher rate. At the moment, conventional loans come with a lower rate, although it is only lower by less than 0.1%.

Jumbo loan minimum down payments needed?

When it comes to down payments on jumbo loans, some lenders would like to see a down payment of at least 20% or higher whereas some lenders may suffice with a down payment of 10%. If you are applying for a jumbo loan with a down payment of only 10%, lenders may want to see an incredibly low debt-to-income ratio along with up to 12-months of mortgage payments sitting in cash reserves.

When do you need a jumbo loan?

Let us say you and your partner have higher incomes and are looking for a home that costs around $1,500,000. You would be unable to find a conforming mortgage to cover the purchase of that home since it is over the conforming mortgage limits set by the US government. You then could not shop mortgage lenders for a traditional home loan and instead would have to inquire about jumbo loans. Jumbo loans are not backed by Fannie Mae or Freddie Mac, therefore, the qualification requirements are much more strict. In order to qualify, you may have to show a minimum credit score of 740, an extremely low debt-to-income ratio, up to 12-months of cash reserves set aside to cover mortgage payments and come up with a down payment of at least 10%, although many lenders may want a down payment of 20% or higher.

Are jumbo loan rates higher than conventional?

Just like conventional mortgage rates, jumbo mortgage rates can fluctuate with market conditions. Sometimes jumbo loan rates can be higher than traditional mortgage rates, and sometimes they can be lower. As of 2022, jumbo loan rates are set at around 4.290% for a 30-year jumbo mortgage loan. A traditional 30-year mortgage has an APR of approximately 4.200%.