Most people think that jumbo loans need a huge down payment.
While that’s not totally wrong, it can also be pretty misleading.
In this guide, we’ll tell you the least amount you can put down and help you decide if a jumbo loan makes sense for you.
We’ll cover topics such as how they work, what makes them attractive compared to traditional mortgages, and where you can find one that fits your needs best.
What Is a Jumbo Loan?
A jumbo loan, also called a non-conforming mortgage, is a type of home loan that exceeds the conforming loan limit set by Fannie Mae and Freddie Mac.
In other words, whenever a loan is over $647,200, it’s a jumbo.
Who sets these rules?
The Federal Housing Finance Agency (FHFA).
Lenders will usually charge a higher interest rate to account for the added risk that comes with a larger loan size, as well as the fact that these loans are not protected from losses in case you default.
You can get jumbo loans in either fixed or adjustable rates, and the terms vary a lot, but in a good way.
How Does A Jumbo Home Loan Work?
Jumbo loans are a bit of a different animal than typical home loans on the market.
The conforming loan is a conventional loan that is made by a private lender with no government backing. Fannie Mae and Freddie Mac usually purchase these loans after origination, which means they have to comply with their limits and requirements.
Nonconforming loans are classified into several groups. The Federal Housing Administration (FHA), the Department of Veterans Affairs (VA), and the U.S. Department of Agriculture (USDA) all offer government-insured loans. These loans are also made by private lenders, but they aren’t conventional loans since lenders wouldn’t offer them without government incentives.
The most common type of conventional non-conforming loan is the jumbo loan, offered by private lenders without government assistance.
Then you even have super jumbo loans that can go more than $25 million.
Credit Score
Jumbo loans generally require a higher credit score than regular mortgage loans, as lenders view them to be riskier investments due to their large size.
Credit scores range from poor to excellent with 740 or higher considered excellent. The better your credit score is and the more stable it is over time, the lower your interest rate will be. This can save you thousands of dollars over the life of the loan.
We are able to fund jumbo loans with credit scores down to a 640.
Generally speaking, most jumbo loan lenders prefer borrowers with a minimum credit score of 740 or higher; although some may accept applicants with lower scores if they have compensating factors such as high income and low debt-to-income ratio.
Property Types
You can buy any property you want. There are no limitations like other loan programs.
As long as the property meets the lender’s requirements, it’s fine.
Down Payment
Down payments for jumbo loans depend on your credit and loan amount, however, generally you can expect to go down to 10%.
In some cases, you can even go as low as 5% down.
Debt-To-Income Ratio (DTI)
Jumbo loans typically have a higher debt-to-income (DTI) ratio requirement than other loan types. The maximum DTI allowed for jumbo mortgages is usually 45%, although some lenders may allow up to 50%.
Cash Reserves
You’ll have better chances of getting approved for a jumbo loan if you have at least 9-12 months of mortgage payments (PITI). PITI stands for principal, interest, taxes, and insurance.
So if your PITI payment was $5k, you’d either have $60k on hand or $90k available after reserves are accounted for.
Usually, people with solid financials have an easier time qualifying for a jumbo loan.
Documentation
Nothing new here.
When submitting your application, it’s important to have ready access to your tax returns, W-2s, 1099s, bank statements and any details concerning any investment accounts. Make sure you have all of this information ready – it’ll make the process go more smoothly!
Appraisals
Due to the higher risk of jumbo loans, lenders may require 2 appraisals – usually by an independent third-party appraiser so they can verify that the property is worth what it’s being sold for.
Conforming Vs. Nonconforming Loans: What’s The Difference?
Conforming loans are a type of conventional loan that is made by private lenders without government backing. These loans must adhere to the limits and requirements set by Fannie Mae and Freddie Mac, two government-sponsored enterprises. This means that the loan amount cannot exceed certain limits, as determined by the Federal Housing Finance Agency (FHFA).
Nonconforming loans, on the other hand, are not subject to these same restrictions. Government-insured loans offered through the Federal Housing Administration (FHA), Department of Veterans Affairs (VA) and U.S. Department of Agriculture (USDA) are a large group of nonconforming loans that would not be available without government incentives.
Jumbo loans are another type of non-conforming loan, which are larger than what is allowed under conforming loan limits. These types of loans often require higher credit scores and down payments than conforming loans do, making them a bit more difficult to qualify for.
What Are The Conforming Loan Limits?
Conforming loan limits are set by Fannie Mae and Freddie Mac, two government-sponsored enterprises that provide liquidity to the mortgage market.
These limits determine how much you can borrow for a single-family home in any given area.
In most parts of the U.S., the conforming loan limit is $647,200 for 2024; however, this amount can be higher in certain high-cost areas such as Alaska and Hawaii, where it goes up to $970,800. Additionally, loan limits may vary on a county-by-county basis in other high-cost areas. To find out what the conforming loan limit is in your area, feel free to reach out to us and we can check.
It’s important to note that conforming loan limits are not necessarily indicative of the maximum amount you can borrow for a home purchase.
Jumbo Loan FAQ
Is it harder to get a jumbo loan?
When compared to other loan types, yes – however usually folks that are buying these high-end properties tend to have their affairs in order, so if that’s you, then it’s just another day at the office.
What credit score is needed for a jumbo mortgage?
This depends on several factors, but you can safely assume above 700.
Can you put 5% down on a jumbo?
With us, absolutely.
Can you refinance a jumbo loan?
Of course, as long as you meet the lender’s requirements
Wrapping It Up
If you’re looking at buying a home in a high-cost market, then a jumbo loan is going to be your best bet.
Get your financials in order, get Pre-Approved, and you’ll be on your way in no time!
