What Is a Jumbo Loan?


A jumbo loan is a type of mortgage loan that exceeds the conforming loan limits set by the Federal Housing Finance Agency (FHFA). These limits vary by location, but in most areas of the United States, a jumbo loan is one that is greater than $726,200. Jumbo loans are not eligible for purchase or backing by government-sponsored entities like Fannie Mae or Freddie Mac, which is why they typically come with higher interest rates and stricter lending criteria.

Jumbo Loan Requirements

Credit Score: Generally, a higher credit score is required, typically 700 or above, to qualify for a jumbo loan.

Debt-to-Income (DTI) Ratio: Lenders typically prefer a lower DTI (under 43%), which measures your monthly debt payments relative to your income.

Down Payment: Jumbo loans usually require a larger down payment than conventional loans, often 20% or more.

Income and Assets: Since jumbo loans are larger amounts, lenders require proof of significant income and assets to ensure you can handle the payments.

Benefits of a Jumbo Loans

  • Higher Loan Amounts

    The primary benefit of a jumbo loan is that it allows you to finance a larger home, particularly if you’re in a high-cost area where home prices exceed conventional loan limits.

  • No PMI (Private Mortgage Insurance)

    While conventional loans often require PMI when the down payment is less than 20%, jumbo loans typically do not, which can save you money in the long run.

  • Flexible Terms

    Jumbo loans can have more flexible terms depending on the lender, including options for adjustable-rate mortgages (ARMs) or fixed-rate loans.

Who Qualifies For a Jumbo Loan?

✓ Strong Credit: A higher credit score (typically 700 or more) is essential for qualifying.

✓ Stable Income: You’ll need a stable income to prove you can handle the larger payments that come with jumbo loans.

✓ Large Down Payment: Most lenders will expect a down payment of at least 20% on a jumbo loan.

✓ Low Debt-to-Income Ratio: A low DTI, usually under 43%, is preferred, though this can vary by lender.

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Jumbo Loan Process

1

Pre-Approval

The first step in securing a jumbo loan is to get pre-approved. This process involves submitting detailed financial documents, such as tax returns, bank statements, and proof of assets, to the lender. Since jumbo loans are for higher loan amounts that exceed conforming loan limits, the lender will thoroughly assess your creditworthiness, income, and overall financial stability to determine how much you can borrow.

2

Identifying the Property

Once pre-approved, you can begin looking for a property within your approved price range. Jumbo loans are typically used for purchasing high-value homes, so the property you choose must meet the lender’s requirements. The home must be in good condition, and the loan amount must fall within the limits set by the lender for jumbo loans, which are usually higher than typical conforming loan limits.

3

Underwriting

After your offer is accepted, the loan enters the underwriting phase. The underwriter will thoroughly review your financial documents, including your credit score, income, and assets, to ensure they meet the lender’s requirements. Additionally, the underwriter will order an appraisal to verify the property’s value. Since jumbo loans carry more risk for lenders, the underwriting process is more rigorous than for conventional loans.

4

Final Loan Approval

Once the underwriting process is complete and the lender is satisfied with your financial profile and the property’s appraisal, you will receive final loan approval. At this stage, the lender may request additional documentation or clarification, but once all conditions are met, you’ll receive a commitment letter outlining the final terms of the loan.

5

Closing

The final step is closing, where you’ll sign the necessary paperwork to finalize the loan. This includes the loan agreement, title transfer documents, and any other required forms. At closing, you’ll also pay your down payment and any applicable closing costs. Once everything is signed and the funds are disbursed, the property is officially yours.

What Can You Finance with a Jumbo Loan?

Single-family homes: Many borrowers use jumbo loans to purchase larger, luxury single-family homes.

Condominiums: In high-demand urban areas, jumbo loans are often used to finance condos that exceed the conforming loan limits.

Multi-family properties: Jumbo loans can be used to finance multi-family properties, though this often requires higher income and larger down payments.

Vacation homes and second homes: If you’re purchasing a second or vacation home in a high-cost area, a jumbo loan can provide the necessary financing.

Frequently Asked Questions for Jumbo Loan

  • A conventional loan is a mortgage that does not exceed the conforming loan limits set by the FHFA, while a jumbo loan exceeds these limits and is not eligible for backing by Fannie Mae or Freddie Mac.

  • It’s challenging to secure a jumbo loan with a low credit score. Lenders typically require a score of at least 700, but a higher score will improve your chances of approval.

  • Yes, jumbo loans generally have higher interest rates compared to conventional loans due to the increased risk involved for lenders. However, the difference in rates is typically small and can vary depending on the lender.

  • Jumbo loans can be harder to qualify for due to stricter requirements, such as higher credit scores, larger down payments, and proof of significant income and assets. However, for borrowers who meet these criteria, jumbo loans are accessible.

  • The approval process for a jumbo loan can take longer than a conventional loan, typically ranging from 30 to 60 days, depending on the lender and complexity of the application.

Success Stories

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First-time homebuyers

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After being turned down by two other lenders, I was losing hope of being able to purchase and renovate my first property. This team not only got my FHA 203K loan approved, but they also helped me understand exactly what renovations would add the most value in my Echo Park neighborhood.

Self-employed borrower

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