Are you in the market for a new home? If you’re a buyer with a larger budget, a jumbo loan can help you buy a more expensive home that might otherwise be difficult to finance with standard conventional loans.
Jumbo loans are mortgages that exceed the conforming loan limit set by Fannie Mae and Freddie Mac. This means that you can borrow more money to purchase the home you love. Lenders who offer jumbo loans have experience navigating complex scenarios and provide you with unique financing expertise and customer service.
What is a Jumbo Loan?
You have a handful of options when choosing the right loan to buy a home. Loan types often differ based on their qualification requirements and the terms they offer, such as the loan’s length, interest rate, and minimum down payment amount.
A jumbo loan is a mortgage loan that allows for a much higher loan amount than any traditional loan. Because of the higher limits, jumbo loans may require a higher down payment amount and credit score to secure the loan. When a loan amount reaches beyond the limit set by the Federal Housing Finance Agency (FHFA), jumbo loans can offer high-end financing that a traditional loan cannot.
In 2022, a jumbo loan is a mortgage bigger than $647,200 in most areas (though conforming loan limits are higher in more expensive counties). Jumbo loans are available in both fixedand adjustable rate mortgage (ARM) options.
How to Get a Jumbo Loan
To learn whether a jumbo loan is the best option for purchasing your home, connect with us. To get you started, we’ve outlined the steps and documentation needed to help you understand the process.
The Financing Process
Homebuyers often start by requesting a quote for their interest rate or beginning an application with a lender for pre-approval. By sharing basic information about your potential purchase, we’ll work with you to pull your credit report and discuss your finances and the potential value of the house you’re interested in purchasing.
As we move through the process together, we’ll arrange for an appraisal of the house to determine its value. The loan may require two appraisals if its value is above a certain amount.
We’ll also discuss the terms you qualify for and your options, as well as request various documentation for the underwriting process to make sure the loan begins on a solid foundation.
We’re with you through each step leading to closing, where we’ll finalize your jumbo loan when you’re ready to purchase.
Jumbo Loan Requirements to Meet
These are some of the common requirements often needed to qualify for a jumbo loan. If you have questions about these requirements, we’re here to help.
- Credit score requirements vary. In most cases, a credit score of 700 or higher qualifies. This may shift lower or higher based on other factors such as Debt-to-Income ratio and down payment amount.
- Through underwriting evaluation, you’ll need documentation of consistent income with a Debt-to-Income ratio at or below 43%. This ratio shows how much of your monthly income goes to paying your debt.
- Along with income information, you need to share employment verification and history.
- For jumbo loans offered by the VA, you must be active duty, a veteran, or a spouse.
- Your down payment needs to be at least 10% of the purchase price, with some scenarios requiring down payments of up to 20%.
Jumbo Loan FAQs
Financing a home is an important investment. It’s ok to have questions. We’ve compiled answers to the frequently asked ones, but don’t hesitate to ask more.
The biggest difference between a jumbo loan and a conventional loan is the amount of money you can borrow. Jumbo loans allow you to borrow more money to purchase your dream home, while conventional loans have lower limits. Additionally, jumbo loans may have stricter qualification requirements because the loan amounts are higher.
You’ll want to consider how much you’ve been able to save for a down payment, the value of the house you want to buy, and how the down payment amount impacts your potential mortgage.
Jumbo loans typically require down payments of 20% or more.
In some cases, loans under $1.5 million have lower down payment requirements at 10%.
The conforming loan limit is the maximum amount of money that can be borrowed for a mortgage using a conventional loan. This limit varies by county and by state. In most counties, the conforming loan limit is $647,200 (2022). However, in high-cost areas like Alaska and Hawaii, the limit is much higher at $$970,800.
If you’re looking for a home that’s outside of the conforming loan limits, you’ll need to apply for a jumbo loan.
When you close your jumbo loan to purchase a house, you’ll need to account for several costs, both upfront and those included in your ongoing monthly payment. These will be clearly outlined as your loan is processed and before you close.
Beyond your initial down payment, you’ll also pay closing costs, which cover expenses such as loan origination fees, an appraisal, title insurance, etc. These typically range from 2-3% of your total loan amount.
You can expect to pay slightly higher closing costs with a jumbo loan than you would with a conforming loan. This is because jumbo loans are more expensive for lenders to process and they need to recoup these costs.
If you’re interested in refinancing your jumbo loan, you’ll need to meet the same requirements that you did when you applied for the original jumbo loan. This includes having a good credit score and sufficient income. You’ll also need to have equity in your home. Equity is the portion of your home that you own outright.
If you’re looking to lower your monthly payments, you may be able to do so by refinancing into a jumbo loan with a lower interest rate. You may also be able to shorten the term of your loan, which will also lower your monthly payments. Keep in mind that if you refinance into a loan with a shorter term, you may end up paying more in interest over the life of the loan.
If you’re interested in jumbo loan refinancing, talk to our team about your options. We’ll be able to help you determine if refinancing is right for you.