What Is a Jumbo Loan?

Also called a Jumbo mortgage, a Jumbo loan allows buyers to finance luxury properties and homes in highly competitive real estate markets where residential real estate prices are pushed higher than the limits set annually by the Federal Housing Finance Authority (FHFA).

In this article, we will review the basics of Jumbo home loans, like those offered by Supreme Lending Dallas.

Jumbo Loan Rates

In the past, Jumbo loan rates tended to have much higher interest rates than Conventional mortgages, but that gap has been shrinking.

Down Payment Requirements for Jumbo Loans

A Jumbo loan down payment is also typically higher than that of a Conventional loan, but that number is also trending down. Jumbo home loans used to require a 30% down payment, compared to the typical 20% for a Conventional loan, but now that number can be as low as 10% to 15% in some cases.

It’s important to remember that even though the required Jumbo loan down payment may be set at a certain amount, there are advantages to putting more money down upfront. Those benefits include smaller monthly payments and avoiding the fees that private mortgage insurance lenders charge for any down payment less than 20%.

Jumbo Loan Limits

The loan limit for conforming loans is set by the FHFA each year and varies from county to county, depending on the state of the real estate market in that area. In a market where prices are lower, the Jumbo loan limit can be as low as $600,000, but in pricier areas, the limit can top $1 million.

Jumbo Loan Requirements

Since Jumbo mortgages are for such a large amount and carry greater risk because they aren’t covered by Fannie Mae or Freddie Mac, the underwriting criteria for Jumbo loans is stricter than Conventional loans. Qualifying for a Jumbo loan may be more stringent, but it’s definitely possible. Here are a few Jumbo loan requirements lenders will look at.

Debt-to-Income (DTI) Ratio

Your debt-to-income (DTI) ratio is a good indicator of how leveraged you are and how high of a risk you are. Lenders may want you to have a DTI of 45% or less for a Jumbo loan, but it can vary.

Cash Reserves

Having a large amount of cash reserves can help you get approved for a Jumbo home loan.

Credit Score

Some lenders may require your credit score to be as high as 720 to get a Jumbo home loan.

Appraisals

A second appraisal may be required for a Jumbo mortgage to ensure the property is valued properly.

Documentation

You’ll be expected to provide documentation proving you have the financial ability to pay for a Jumbo loan, including bank statements, investment account information, W-2s, 1099s, and full tax returns.

Who Should Take Out a Jumbo Loan?

Your ability to obtain a Jumbo mortgage depends on the criteria listed above. In general, a Jumbo home loan is ideal for high-income earners who have not yet accumulated millions in excess cash to spend on a multi-million dollar property. These individuals may have higher credit scores and retirement account reserves, all of which makes them more attractive to mortgage lenders.