Jumbo Loans: Requirements and Limits

Are you looking to purchase a home that would be considered more expensive or luxurious than the typical single-family home? There are mortgage options available for homes that exceed most standard mortgage limits in the form of Jumbo Loans. Jumbo loans are an option utilized by homeowners when the cost of their prospective home exceeds the loan-servicing limits of Freddie Mac and Fannie Mae, currently sitting at $647,200 (exceptions in certain high-cost markets, where the limit is $970,800).

Jumbo Loans (also known as Non-Conforming Conventional Mortgages) for homes typically have stricter qualification rules than standard mortgage loans due to the fact that the Federal Housing Finance Agency (FHFA), Freddie Mac, and Fannie Mae all cannot guarantee the standard lender protections that typically apply to standard mortgages. While risky, Jumbo Loans do come in both fixed and variable/adjustable interest rates, and the loans themselves come in a variety of forms.

Qualifications for Jumbo Loans are extremely strict, and the application process is very thorough; lenders take substantial financial risks without the standard protections, so many steps are taken to compensate for the lack of protection. There are dozens of requirements the lender must review and consider before proceeding with Jumbo Loan applications: 

Requirements and Limits

Credit Score: Lenders typically require borrowers to have a standard credit score of at least 700, sometimes requiring scores higher than 720.

DTI: The debt-to-income ratio is also required to be high, as well. Standard limits for Jumbo Loan approval is 45% DTI or higher.

Savings: Large cash reserves make a borrower much more likely to be approved for a Jumbo loan. It’s common practice that lenders require (or at the very least, highly consider) borrowers to have enough money currently in the bank to pay for a full year of their mortgage payments at the time of application.

Documentation: Borrowers need to have proof of a borrower’s financial health, via a documented paper trail of their recent financial history. This will entail paperwork like relevant W-2s, 1099s, previous years’ tax returns, and even bank statements for any other savings or investment accounts.

Second Opinions: Lenders may enlist appraisers or auditors under their own employ to review your provided information, as well as to get their own trusted opinion on the cost of the property that you’re taking the Jumbo Loan out against. They may go as far as to do their own secondary home inspection and appraisals.

Substantial Down Payments: It’s standard that with Jumbo Loans, lenders require borrowers to make large down payments. 20% down payments are standard, though they can be negotiated down slightly with enough savings, excellent credit, and good financial health. Still, know that you will owe a decent amount of your future property up front with a Jumbo Loan.

High Fees: Due to the substantial vetting process that borrowers go through in the application process, expect large fees to be added during the application, underwriting, and closing processes.

Upper limits of Jumbo Loans are highly subjective: Considering the information provided and reviewed in the thorough underwriting and application process, it’s important to consider what is feasible for the total size of your Jumbo Loan Mortgage. It’s important to consider that your total is subjective on your current budget, income and financial health. 

Be in Great Financial Health: The larger your Jumbo Loan, the larger the down payments and interest rates will be. It’s standard that many Jumbo Loans come with an Interest Rate of an average of nearly 6% over 30 years. 

It may be best to make a generalized estimation of your own finances against the cost of the property you’re looking to purchase in order to plan your budget going forward with a jumbo loan calculator; if these rates seem reasonable to you, it’s time to reach out to your local mortgage broker to begin negotiating your terms!

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