With the housing market undergoing so many rapid shifts, understanding the best loan options for your specific financial situation is not always easy. There are several financing options available for home loans, including options like jumbo loans.
Jumbo loans are available for a variety of loan types, including fixed-rate, adjustable-rate, and interest-only loans. Borrowers should carefully weigh the pros and cons of a jumbo loan before applying for one.
This article will explore everything you need to know about jumbo loans including what is a jumbo loan, jumbo loan requirements, and how do jumbo loans work to help you understand whether a jumbo loan is the right option for you.
What is a jumbo loan?
Jumbo loans are mortgage loans that exceed the maximum loan amounts set by government entities such as the Federal Housing Financing Agency (FHFA). A jumbo loan is not eligible to be purchased or guaranteed by Fannie Mae and Freddie Mac, which is a significant difference between jumbo loans and conforming loans. Jumbo loans are available to borrowers who need to finance a home purchase that exceeds the maximum amount allowed by Fannie Mae and Freddie Mac.
Jumbo loans typically have higher interest rates than conventional loans, and lenders may require a higher credit score and a larger down payment. Jumbo loans also have more stringent underwriting requirements, including a larger cash reserve requirement and a lower debt-to-income ratio. As a result, jumbo loans can be a suitable option for borrowers looking to purchase a high-cost home or a luxury home if they have sufficient income and credit history to qualify for the loan.
Jumbo loan requirements
Jumbo loans are mortgage loans that exceed the conventional loan limits set by the Federal Housing Finance Agency (FHFA) of $726,200 for a single-family home. In order to qualify for a jumbo loan, borrowers must have excellent credit, ample cash reserves, steady income, and a low debt-to-income ratio. Extensive documentation will also be needed to qualify for jumbo loan rates.
Additionally, most lenders require a minimum down payment of 20%. However, exact requirements for a jumbo loan may vary from lender to lender, so it is important to do your research and evaluate all available options in order to determine the exact qualifications lenders require and whether a jumbo loan is the best option for your financial situation.
Jumbo loan down payment
The down payment required for a jumbo loan may differ based on lender requirements, the purchase price of the home, and the borrower’s FICO score. At a minimum, borrowers should expect a minimum down payment of 10%. However, some lenders may require a 20% or 30% down payment, but it will vary.
Credit score for a jumbo loan
When it comes to taking out a jumbo loan, it is essential to consider the credit score requirement and all the other factors that go into the loan application process. The credit score requirement for a jumbo loan is typically higher than the minimum credit score required for a conforming loan. The exact credit score you need to qualify for a jumbo loan depends on the lender and the type of loan product you are looking for. Generally, lenders require a minimum credit score of 680 to 700 for a jumbo loan, but some lenders may have higher or lower requirements.
Jumbo loan limits
Currently, the limits for a conforming loan are $726,200 for a single-family home, but this can vary from state to state, so it’s important to check state guidelines when exploring home loan options as the area and general cost of living may change the actual amount. Any mortgage that exceeds the conforming loan limit will be treated as a jumbo loan and will be subject to more stringent evaluation during the approval and qualification process.
Jumbo loan vs. conforming loan
The main difference when it comes to a jumbo loan vs. conforming loan is the amount a borrower can qualify for. The conforming loan limit is set to a certain amount depending on the state and area, and a loan amount above that is considered a jumbo loan. Because of the differing amounts that borrowers can obtain with a jumbo loan, the qualification requirements are different.
The down payment for a conventional mortgage will typically be lower than what is required for a jumbo loan. The level of cash reserves that borrowers need to demonstrate will be higher with a jumbo loan compared to a conventional mortgage.
How do jumbo loans work?
Lenders will ask for additional documentation as part of the evaluation for jumbo loans. You will need to show bank statements over time to demonstrate the level of cash required to close the loan and cash reserves. Lenders will also look at your debt-to-income ratio (i.e., how much you earn versus the amount of debt you have). Jumbo loans are available as a 15-year fixed loan, a 30-year fixed loan, or an adjustable-rate mortgage if you meet all of the requirements set by lenders.
When it comes to jumbo loans, there is a lot to consider before deciding if it is the right option for you. Borrowers should also take into account the fact that jumbo loans come with additional fees and costs.
Historically, jumbo loans have had higher interest rates than conventional loans due to the additional risk, although that has since shifted over time. In some cases, jumbo loan rates may be lower than conforming loan interest rates. That could make jumbo loans a viable option for your home purchase. Comparing interest rates over time, between fixed-rate and adjustable-rate mortgages and conforming vs. jumbo will be crucial. Ultimately, borrowers must carefully weigh the pros and cons of a jumbo loan before making a decision, ensuring that they are well-informed about their options.
Why do you need a jumbo loan?
A jumbo loan can be a suitable option for borrowers who want to purchase a home beyond the limits of a conforming loan with some additional benefits depending on the lender.
Jumbo loans are designed to help borrowers seeking to obtain a loan above the allowed conventional conforming loan limits. This gives borrowers the opportunity to purchase higher-priced homes without having to put down a greater percentage of the down payment to accommodate for the conforming loan limit.
CrossCountry Mortgage Jumbo loan programs
When applying for a jumbo loan, it is important to consider all the requirements and to prepare for the loan application process. While a higher credit score is generally needed for a jumbo loan, other factors that can influence the lender's decision include your income, the amount of money you have saved for a down payment, and your debt-to-income ratio.
It is also important to compare loan products and lenders to find the one that is right for you. Shop around and compare the interest rates, fees, and other terms of the different loan products. With the right preparation, you can find the jumbo loan that fits your needs.
CrossCountry Mortgage offers jumbo loans with financing options available if you are thinking of purchasing a luxury or high-cost home. Our expert team is happy to work with you to identify whether a jumbo loan is right for you and explore options within fixed-rate jumbo loans and adjustable-rate jumbo loans.