Need a jumbo mortgage?
Jumbo Mortgage Loan Options
A "Jumbo Loan" is a non-conforming loan that exceeds the conforming loan limit of $766,550 set by the GSEs Fannie Mae (FNMA) and Freddie Mac (FHLMC). Many of California's large cities such as Los Angeles, Orange County, San Diego, San Francisco Bay area allow higher conforming loan limits up to $1,149,825 for a home. In this case, a jumbo loan is redefined as a mortgage that's $1,149,825 and above.
Usually borrowers inquire about prequalifying for jumbo financing for homes in upscale neighborhoods in high cost counties throughout the U.S. Not surprisingly, a lot of high cost counties and areas are in California, Colorado, Washington, New York, New Jersey, Connecticut, the DC metro, beachfront areas of Florida, and parts of Texas.
If you’re searching for a home priced over $766,550 with 5-percent down and you know your income qualifies or will increase in the near future, a jumbo loan might very well be the right choice for you. Moreover, your down payment can still be as low as 3.5% in certain areas using an FHA jumbo.
Because a larger amount of money is secured by a single property most lenders consider jumbo loans to be a riskier deal than conforming loans. Lenders minimize that risk by having stricter qualifying rules such as a low debt-to-income (DTI) ratio, high liquid reserves, high credit scores, and higher down payments than conforming loans.
Let's say you want to qualify for a 10-percent down jumbo loan up to $2 million. It's highly probable the lender will want you to have a 760 or higher credit score, 6-9 months of liquid reserves and a debt-to-income ratio of 43 or less.
| 30-year Fixed Loan Type | Bank | Mortgage Broker | ||||
|---|---|---|---|---|---|---|
| The loan scenario above is for a borrower with a 700 credit scores buying an single detached home or condo. It is pretty clear which option is more flexible in terms of qualifying. |
||||||
| Purchase Price: | $1,600,000 | $1,600,000 | ||||
| Minimum Down Payment Required: | 20%+ | 10-15% | ||||
| Loan amount: | $1,280,000 | $1,440,000 | ||||
| Maximum Debt ratios: | 43% | 50% | ||||
| Minimum Credit Score: | 720 | 680 | ||||
| Income & Job Documentation: | Yes, 2 years | 1-2 years | ||||
For buyers and homeowners with financing needs above the conforming limit jumbo loans are the answer.
Here's another example of when to use a jumbo loan. You secure a $1.5 million dollar jumbo loan on a luxury condo selling for $2 million versus a high-balance conforming loan of $1,149,825 and a piggyback second loan of $350,175.
With the increased risk on a jumbo loan, the guidelines become stricter to qualify such as a larger down payment, more liquid assets, and verifying reliability of income and so on.
Some jumbo lenders are more conservative such as local banks which may require 20- to 25-percent down, while a mortgage lender/broker may only ask a borrower with excellent credit to put just 10-percent down because of their profession (medical doctor, lawyer, c-suite) and should have a stable and increasing income over the years. In this scenario, the mortgage broker is using their advantage of a variety of jumbo loan products to qualified borrowers in specific geographic areas.
Here are five more common jumbo mortgage questions and answers
No. Jumbo loans typically do not require PMI because of the large down payments required. Avoiding PMI saves money on top of already lower interest rates.
Expect to show 6-9 months of mortgage payments in your checking, savings or investment accounts. Some jumbo loans require up to 12 months of reserves. Especially for higher loan amounts over one million.
Yes. Paying upfront points often earns a reduced rate on a jumbo mortgage. Each point equals one perent of the loan amount. Paying two points to lower your rate may help you save substantially over 30 years.
1. View the disclosure disclaimer regarding loan approval, loan product availability and qualifying for a loan. Not All borrowers will qualify.