What is a Jumbo Loan?
Jumbo mortgage loans are, as the name suggests, larger-than-average home loans. They're designed for high-income individuals who want to buy homes that are above the conforming limits set by the Federal Housing Financing Authority (FHFA).
For 93% of America, the conforming limit is approximately $453,100 (as of 2018), but it can be higher in a few other areas with higher market prices. Since they're above the conforming limits, jumbo loans aren't bought, guaranteed, or secured by Fannie Mae or Freddie Mac.
Jumbo loans are often called non-conforming loans because loan amounts are over the conforming limits set by Fannie Mae and Freddie Mac. This means that each lender sets its own conditions for providing the loan.
So, if you apply for a jumbo loan, you'll get varying offers from lenders, each different from the next. Fortunately, the team at home.loans can help you wade through them and find the home loan solution that works best for you.
Loan Terms for a Jumbo Mortgage Loan
Though they're deemed riskier than conventional loans, and have more strict qualification standards, jumbo loans don't necessarily have higher rates. The lower administrative costs and business value of jumbo loan applicants have made the terms more attractive for borrowers who are interested in the higher loan amount. Here's what jumbo loan terms are usually like:
Down payments used to be as high as 30% of the loan, but can be reduced to as low as 5% in some cases. Note that the down payment affects the rate you'll pay (the lower the down payment, the higher the rate, and vice versa). Consider this during negotiations with the lender.
Due to the higher-than-average monthly payments, some lenders are willing to absorb the private mortgage insurance premium even if the down payment is below 20%.
Interest rates for jumbo loans used to be higher than those for conforming loans, but have recently equaled and sometimes beaten them.
Over the years, jumbo loans have become more attractive to lenders willing to take the risk. This is because high-income borrowers are easier to manage, have good credit, and most importantly are a target market for other lucrative financial products like wealth management.
The loan terms can significantly vary from lender to lender. The team at home.loans is eager to help you get the best deals on the market.
Jumbo Loan Pros:
Larger loan amounts accompanied by decent rates (sometimes below conventional loan rates)
More flexible second mortgage options
Down payments as low as 5% are acceptable in some cases, depending on the borrower's credit score
Qualify for jumbo loans with credit scores as low as 660
Jumbo Loan Cons:
Requirements for jumbo loans vary depending on the lender
The lower your credit score, the higher the down payment that must be made
Many lenders require at least 6 months' worth of mortgage payments saved in an asset account
Jumbo loans are unsecured, so eligibility requirements are often really strict
Jumbo Loan Refinancing
Like most mortgage solutions, jumbo loans give borrowers a refinancing option. Contrary to popular belief, homeowners are eligible to refinance their jumbo mortgage loan with as little as 10% equity. (The common misconception is that 20% equity is the required amount.) Even so, refinancing a jumbo loan comes with the same strict eligibility requirements that the loans are known to have.
That said, jumbo loan refinancing can still be an extremely useful solution for adding flexibility to your home loan. Notable benefits include:
- Financing of up to 90%
- Interest-only payment option
- Can be used for payment of second mortgage
- Available second mortgage or HELOC combinations with refinancing
- No penalty fees for prepayment
- Even the slightest interest rate reduction adds a huge value to borrower savings
To find out more about jumbo loan refinancing, please fill out the form below and a home.loans jumbo loan specialist will reach out to you.
How to Qualify for a Jumbo Mortgage Loan
Due to their size and lack of Fannie Mae and Freddie Mac guarantees, jumbo loans have much stricter qualification standards. This is because they're riskier for lenders than the smaller conventional loans. Here's what you need to know about qualifying for a jumbo loan:
Although it's possible to qualify with a credit score of 660, most lenders start at 700.
To minimize risk, lenders may require you to have 6–12 months in reserves for payments.
The preferred debt-to-income ratio is in the lower range of 36%–43%.
The target borrower usually earns $250,000–$500,000 per year.
Due to the size of the jumbo loan and lack of guarantees, the lender may also require more paperwork and added fees than for conforming loans. So, be prepared to jump through a few hoops.
How to apply for a Jumbo Home loan
Applying for a jumbo mortgage loan with home.loans is relatively simple. We will:
help ascertain your eligibility for a jumbo loan; and
connect you with approved lenders.