Jumbo Loan: Jumbo Mortgage Qualifications

A jumbo loan, also known as a conventional nonconforming loan, is a type of mortgage loan higher than the loan amount limits set by the Federal Housing Finance Agency (FHFA). Jumbo loans allow you to borrow more money to cover the purchase price of a property. Jumbo loans are helpful for homeowners in high-cost areas where the cost of housing is high and where the conforming loans may not cover the total purchase price of a home.

Jumbo loans allow residents in the country’s most expensive real estate market to buy a home, especially residents without enough cash to cover the difference between a conforming loan limit and the purchase price. The borrowing limit for a jumbo loan is higher, usually a few million dollars depending on the lender, allowing borrowers to expand the home price limit.

Jumbo mortgage loan eligibility requires a higher credit score and a low debt-to-income ratio. Applicants may need proof of consistent income, cash reserves or liquid assets, and physical documents such as tax returns, pay stubs, and bank statements. Before applying for a jumbo loan, consider the following:

• Debt-to-income ratio: Any debt you have, and the monthly debt payment, can affect how much you can afford to pay per month on your jumbo loan.
• Monthly mortgage payment: The mortgage payment depends on the amount you plan to borrow and the interest rate on the loan.
• The interest rate of the loan: A higher jumbo mortgage rate means a higher monthly payment, which can affect how much money you can afford to borrow for your home.

Private lenders offer jumbo loans without support from the federal government (except for Veterans Affairs, which offers jumbo loans to qualifying service members). This means that jumbo loans have a higher borrowing limit.

A jumbo loan can support purchasing different types of properties, including primary residences, vacation homes, and investment properties. Similar to conforming loans, many lenders offer jumbo loans with a fifteen- or thirty-year loan term. Jumbo loans also come in fixed-rate loans and adjustable rate loans.

Homebuyers can use traditional loans and jumbo loans to purchase a property. These loan types have similar loan terms and refinancing opportunities, but there are several differences:

• Closing costs: Jumbo loans typically have higher closing costs than conforming mortgage loans.
• Down payment: The down payment requirements differ. With a conforming loan, you can put a low down payment of as little as three percent. Jumbo loans usually require a higher down payment, usually twenty percent. (A lower down payment is possible with a jumbo loan, but that can come with higher interest rates or private mortgage insurance.)
• Eligibility: Similar to conforming loans, jumbo loans require applicants to submit a credit score and debt-to-income ratio (DTI). Jumbo loans typically require higher credit scores and lower debt-to-income ratios than conventional loans. Jumbo loans also have stricter eligibility requirements.
• Interest rates: Jumbo loans typically have higher interest rates than conforming loans, though there may be exceptions depending on the lender.
• Lenders: Typically, private mortgage lenders make conforming loans and sell the loans to federal mortgage agencies, Fannie Mae and Freddie Mac, after origination. Those federal agencies back these mortgages and set the mortgage loan size limits. Private lenders offer jumbo loans without the restrictions of the government.
• Loan amount: The jumbo loan limit is higher than a conventional mortgage and can go up to a few million, depending on the lender. The conforming loan limits vary state-by-state and even county-by-county. To check the conforming limits in your local area, consult the FHFA map.

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