A jumbo loan is any loan that is above the standard lending limits of FHA, VA, or conventional. While still a bit harder to find than the more common loan types, jumbo loans have become much more available in recent years. And jumbo mortgage rates are surprisingly low.
Increased availability of jumbo mortgages is helping many home buyers in higher-cost areas, like southern California, Seattle, New York city, and dozens of other cities across the U.S.Check your home buying eligibility. Start here (Dec 9th, 2023)
Jumbo mortgage rates
First let’s look at current jumbo rates and trends. In a word, they’re great. A few years ago, a jumbo loan borrower would have to pay an interest rate a couple percentage points higher than they would if getting a conforming loan. Lenders considered jumbo mortgages a greater risk.
But now, jumbo loan borrowers tend to have great credit, and are buying a home they intend to live in, decreasing chances of foreclosure.
In addition, banks are attracting jumbo loan borrowers with low rates, in hopes these borrowers will park their assets in the bank’s investment options like IRAs and stock trading accounts.
While participation in a bank’s other financial services is not required for low rates, home buyers who want a loan above the conforming loan limit can still benefit from the low rates these banks offer.
Jumbo loan limits
Jumbo loans have lower and upper end limits. There’s no official upper end limit to jumbo loans. That’s determined by the specific bank or lender. Some lenders will only offer loans to $1 million, while other go up to $5 million or higher.
There are standard lower end limits however. That limit depends on the loan type that you’re wanting and the geographical area where the home is located. Below is a list of typical low-end limits. If you’re looking for a loan below these amounts, you are better applying for a standard non-jumbo loan.
Conventional conforming loan limit: $417,000 and up to $625,500 for high cost areas (although areas of Hawaii have a limit of up to $721,050). Loan amounts between $417,000 and $625,500 are generally referred to as conforming high balance or conforming jumbo loans. These are not true jumbo loans, but a temporary extended loan limit allowed by Fannie Mae and Freddie Mac.
FHA: Base limit of $271,050 and up to $625,500.
VA: Base limit of $417,000 and going up over $1 million in a few areas. (Note: the VA loan is unique in that you can borrower more than the limit if you make a 25% down payment on the amount that exceeds the limit. For more information click here.)
So it’s safe to say that if you’re looking for a loan amount above $625,000, your best bet is to find and apply with a jumbo loan lender. Apply here.
Where to look for a jumbo loan
If you’re looking for a jumbo loan, it’s incredibly important to shop around at various banks, mortgage companies, and credit unions.
Why? Jumbo loans are not like conforming loans or FHA, where each lender approves the loan based on standardized nationwide criteria. With jumbo loans, each lender makes up their own rules for their own jumbo loan offerings.
You could check with one bank for your $2 million loan with 20% down, and find out they only lend to $1 million and require 30% down. But the bank across the street could allow up to $3 million with 20% down. Various banks will differ greatly on other guidelines like credit score and property type.
Also, some lender will offer fixed rate jumbo loans, while others only offer adjustable rates.
We have been able to help purchase and refinance borrowers with requested loan amounts up to $3 million. To find a lender for your jumbo loan scenario contact us here.
Jumbo loan guidelines
As a general rule, underwriting requirements for jumbo loans are stricter than those of conventional conforming loans or FHA.
Credit scores. You should have a score of at least 720 for the best chance of being approved for a jumbo loan. To get the best rates, you should have a score of 740+.
Reserves. This is the amount of money you have in bank accounts and investments. Banks want to see that you have reserves in case your income stops. It’s counted in months of housing expenses. So if your proposed house payment including principle, interest, taxes and insurance is $4,000, and your bank requires 12 months of reserves, you’ll have to have $48,000 in the bank, after the down payment and closing costs are paid for.
Down Payment/Equity. Many lenders allow a 20% down payment or current equity on a jumbo loan, but some require as much as 35% or 40%. Again, shop around until you find a lender who will accept the amount of money you can put down, or the amount of equity in your home if you’re looking to refinance.
Debt-to-Income Ratio. This is the comparison of your income to your total monthly payment including future mortgage payment. Lenders generally require you to have a debt-to-income ratio below 43.
Income Verification. Many jumbo loan borrowers have their own businesses and are self-employed. Gather your tax returns for the last two years. You’ll need them to prove your income.Check your home buying eligibility. Start here (Dec 9th, 2023)
Fixed jumbo mortgages
It’s just recently that fixed-rate jumbo mortgages have come back on the market. During the first few years after the mortgage meltdown, only adjustable rates of jumbo loans were available.
Now, 30-year fixed jumbo loans as well as 15-year fixed are available at great rates. These loans provide the security of knowing that the rate on your $1 million+ mortgage won’t shoot up to an unaffordable level.
Adjustable Rate (ARM) jumbo loans
If you don’t plan to have the mortgage for long, an adjustable-rate jumbo loan could work well. Interest rates are usually lower than jumbo fixed-rate loans. Though the rate starts adjusting after a certain amount of time, typically you can have an initial fixed period of 5, 7, or 10 years.
An adjustable-rate jumbo loan could be great for homeowners who plan to pay off the loan or sell the home within a few years.Check your home buying eligibility. Start here (Dec 9th, 2023)