What Is a Jumbo Home Loan or Jumbo Mortgage?

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Americans love big things. Big cars, big meals, big bags of money -- and, for many in hot real estate markets, great big mortgages. Maybe you don’t really love that great big mortgage, but if you’re going to buy a house, it could be your only option. 

That’s why you’re here, you’re looking for more information about jumbo mortgages, right?

Jumbo Home Loans: The Basics

A jumbo home loan, or jumbo mortgage, is a type of non-conforming conventional loan. This means it’s a loan that isn’t backed by FHA, it has nothing to do with VA or USDA, and neither Fannie Mae nor Freddie Mac will buy it. It makes a person wonder why a bank would even deal in these, but the truth is that they’re reasonably low risk and very high profit from the lender's perspective. 

Banks that do deal in jumbos typically treat them as “shelf” or portfolio loans, which are loans that are kept and serviced in-house rather than sold. This gives the bank itself the ultimate in deciding power when it comes to terms and qualifications. It also gives borrowers a huge range of options when it comes to products. Unlike more traditional mortgages, where shopping around may not yield much for you, jumbos can have very different terms from bank to bank. That’s great for you if you need one.

Besides not being any of the things listed above, jumbo loans have one other very well-defined characteristic in common: they exceed the loan limits for conforming loans. For 2018, that means that in most of the United States, any loan above $453,100 is probably considered a jumbo mortgage. In higher cost areas like parts of California, Alaska and Hawaii, a mortgage may not be considered a jumbo until it reaches upwards of $721,050. 

What is the Difference Between a Conventional Loan and a Jumbo Loan?

Jumbo mortgage qualification is similar to that of a conventional loan. You have to prove you have the intention of paying the loan back, as well as the ability to do so. Typically, you’re going to see these main differences between conventional loans and jumbos, however:

  • Higher credit score requirements. Most banks will want to see a credit score of at least 700 to loan you a million bucks. Others want more (upwards or beyond 740 isn’t uncommon) so really start cleaning that credit record up and borrow responsibly.
  • Larger down payments needed. You can get almost any sort of borrower-occupied residential mortgage with no more than five percent down these days, but when it comes to jumbos, you’ve found a low down payment requirement if the bank only asks for 10. Not that long ago, as much as 30 percent was the norm, not the exception.
  • No mortgage insurance. The down payment on a jumbo may be harsh, but there’s often no mortgage insurance due, since many of banks that make these loans keep them to themselves. They don’t need to prove to a secondary market buyer that you’re not a risk for default; they already believe it.
  • Flexibility on income sources. Because the type of people who tend to borrow using a jumbo are a very heterogeneous group, ranging from everyday people in extremely costly areas to day traders, rock stars and celebrities, banks are used to dealing with more complicated work histories. If you have a business or are the sort of person who works as an entertainer or are paid by appearances, a jumbo may be easier to qualify for than a conventional mortgage.
  • Double the appraisals, double the fun. One quirk of many jumbos is that they frequently require two appraisals prior to closing. This is because the bank wants to be completely sure that they’re not making a mistake and giving you way too much money for your house. So, as long as appraisal number one and appraisal number two are roughly similar, you’re gold. You still have to pay for them both, though.

An Alternative to a Jumbo Loan

If you aren’t certain that you’ll be able to meet the requirements for a jumbo, there’s another option. In banking circles, these are frequently referred to as “piggyback” loans or “80-20s”. This is where a lender makes an 80 percent conventional conforming loan as a first mortgage, and then also loans you a 10 to 15 percent second mortgage simultaneously. 

Although it seems odd, it's perfectly legal. It is, however, a lot of burden to carry if things go wrong for you, so be sure you want this before you try it. Some people like this configuration because it eliminates the need for mortgage insurance, though the second mortgage is often at a higher rate (sometimes even an adjustable rate) and a shorter term than the first. 

Do You Pay PMI on a Jumbo Loan?

In the vast majority of cases, you won't need to pay any PMI on jumbo loans. Typically, if you’re approved for a jumbo loan, you’ll already have to pay a 20% down payment, and your lender will already have verified your income as well as checked your credit score. This process improves a lender’s confidence that you’re a low risk borrower-- meaning there is less of a need to insure the loan.

Wanna talk about big things like giant mortgage loans? We’re happy to help you sort through your mega-huge options! Just drop us a line at Home.Loans, we’re here, just waiting for you. Call us soon and we’ll let you in on our office pool: when do you think the copy machine toner’s going to run out? Stay tuned!


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