The maximum amount that can be borrowed for jumbo loans is $1,149,825 in high-cost regions. The Federal Housing Finance Agency sets these numbers, which establish the cutoff point at which a mortgage qualifies as a jumbo loan.
It is best for purchasing properties in expensive, competitive real estate markets, such as luxury homes. The loan rates are similar to conventional loans, but you’ll typically need a larger down payment (10–15%). If you’re looking for a lender who can help you get a mortgage, connect with our lenders today.
What Is a Jumbo Loan?
A jumbo mortgage is your key to financing a home that costs the maximum amount that regular mortgages can lend. The interest rates set by the Federal Reserve may fluctuate in line with jumbo loan rates. This means that jumbo loan rates will also rise if the Fed raises rates. Jumbo loans stick with the lender because they can’t be sold to other investors.
How Does a Jumbo Mortgage Work?
Jumbo loans are not backed by government agencies, in contrast to conventional mortgages. A credit score of 700 or higher and a debt-to-income (DTI) ratio of 43% or lower are prerequisites for approval of a jumbo loan.
Apart from this, you also need to provide documents like W-2s, tax returns, and bank/investment statements for the past two years.
Besides this, if you’re self-employed, the income requirements are greater: two years of tax returns and at least 60 days of current bank statements. Lenders also want to see non-liquid asset ownership, including other real estate properties.
Requirements for Jumbo Loan
A large financial commitment is required for jumbo loans as compared to conventional mortgages. The following criteria are:
- Credit Score: Jumbo loan lenders usually require a credit score above 700. This lowers the risk for the lender and shows good credit management.
- Down Payment: The down payment requirement for jumbo can be between 10-15% and you might need to pay 20% depending on the lender. A higher down payment increases your initial equity in the property, which reduces the lender’s risk.
- Debt-to-Income Ratio: You must aim for a DTI ratio of less than 50%. This ratio evaluates the difference between your gross monthly income and all of your monthly debt payments (credit card, rent, auto loans, etc.)
- Financial Documents: You will need a lot of paperwork to confirm your ability to repay the loan. They may want tax returns, W-2s, and recent statements from your bank, as well as any investment account statements (if any).
>> Check Jumbo vs. Conventional Loans for Home Purchase
Pros and Cons of Jumbo Loans
The following are the pros and cons of jumbo loans:
Pros
- Competing Rates: Jumbo loans occasionally have marginally lower interest rates than conforming loans, though this is not always the case. Throughout your mortgage, this could result in significant savings.
- Access to luxury homes: Finance your dream property that exceeds conventional limits.
- One Loan Instead of Multiple: You can have one loan instead of having multiple loans for a single property.
Cons
- Higher Interest Rates: Jumbo loans might have higher interest rates than regular mortgages due to the extra risk for lenders. This can translate to higher monthly payments.
- Restricted Lender Availability: There are not so many lenders available for jumbo loans as compared to traditional mortgages. This may reduce your options.
- Bigger Down Payment Requirement: You may have to pay a larger down payment, which may affect your financial stability. Make sure you can access your savings to repay the loan.
Jumbo Loan vs. Conforming Loan
There are several factors to consider when selecting the mortgage for your ideal home. Here’s a detailed breakdown of the key differences between jumbo loans and conforming loans.
| Features | Jumbo Loan | Conforming Loan |
| Maximum Loan Amount | Exceeds conforming loan limit ($766,550+ in 2024). | The conforming loan limit for the United States is set at $766,550 for 2024. |
| Suitable for | These loans are for luxury residences and properties of high value. | These loans are for houses with prices below the conforming loan limit. |
| Qualifications Needed | A DTI ratio of 43%, a bigger down payment, and a good credit score. | A lower credit score requirement, a smaller down payment, and more flexibility for DTI. |
| Lender Accessibility | There are fewer lenders available for jumbo loans, which have a higher risk of failure. | There are more lenders are available for conforming loans. |
Bottom Line
Jumbo loans can be beneficial for you if you want to buy a luxury home. However, some lenders may provide more flexibility in qualifying terms than conforming loans. Borrowers with excellent credit histories but non-traditional sources of income can benefit from such loans.
Jumbo loans occasionally have marginally lower interest rates than conforming loans. This translates to significant savings over the life of your mortgage. You can also look for a house on Houzeo and make your home-buying journey easy.
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Frequently Asked Questions
What is a jumbo loan?
A jumbo loan is a type of mortgage for properties that are larger than the annual conforming loan limit set by the Federal Housing Finance Agency (FHFA). The maximum amount in most US regions as of April 2024 is $766,550.
How much down payment is required for jumbo loan?
One should budget for a higher down payment, usually in the range of 10% to 20% or depending on the cost of the house.
Are jumbo loan interest rates higher?
Jumbo loan rates can be slightly higher or lower than conforming loan rates, depending on the state of the market. It's important to compare rates from different lenders.
