What is a Jumbo Loan?

When Should I Use a Jumbo Mortgage?

You’d use a jumbo mortgage when you’re seeking a loan amount that’s greater than the conforming loan limit in your area. In most of the country, that means you’ll use a jumbo mortgage if your loan amount is greater than the Fannie Mae loan limit it would be considered a non-conforming (Jumbo) loan. To determine the best loan option for you contact us today!

Is Qualifying for a Jumbo Mortgage Different?

Jumbo mortgages have the same overall qualifying methodology as a conforming loan. Lenders will look at the credit score, down payment size, total monthly debt obligations relative to income (called your debt-to-income ratio), and money left over after closing. Credit score requirements are about the same for conforming and jumbo: a credit score down to 680 generally gets you most available loan options, albeit with a higher rate than you’d get with a top-tier credit score of 780 or greater.

As for money left over after loan closing — often called reserves or post-closing liquidity — jumbo loans will be more stringent than conforming. Typically jumbo lenders want to see 12 months of reserves after the close, half liquid (in a checking or savings account), and half calculated from retirement assets. Conforming loan reserve requirements range from 0 to 12 months, depending on factors such as credit score, down payment, and DTI. Jumbo exceptions are available if your debt-to-income ratio is low and your down payment is high.

Jumbo Loan Benefits

• Higher debt-to-income ratio. For most conforming loans with 20 percent down or greater, lenders will usually require that your total monthly housing payment plus all other monthly bills don’t exceed 43 percent of your income. But there can be some flexibility on non-conforming loans. For example, if you documented substantial cash reserves left over after the loan closed, you might be able to get a jumbo loan with a debt-to-income ratio higher than 43 percent.

• Flexible income calculations. Jumbo income calculations can be more logical than conforming. For example, if you were in the same industry for 15 years and recently started your own business in that industry, a conforming loan would require you to show two years of filed self-employed tax returns. A jumbo loan might only require one year of filed returns if you could document that the business was stable or growing.

• Less than 20 percent down with no mortgage insurance. Down payments on jumbo loans can be as little as 10 percent for loan amounts of $1 million and sometimes higher, translating into a $1.1 million purchase price or higher. Unlike conforming loans, these low-down jumbo programs don’t always require mortgage insurance. The tradeoff for this flexibility is that most lenders will offer a rate that’s about .25 percent higher and require 30- to 36-percent debt-to-income ratios for these low-down jumbos. To find out more about jumbo mortgage programs and interest rates contact us.

How Do Jumbo Rates Compare to Conforming Rates?

Before the financial crisis of 2008, jumbo loans typically had rates at least .25 percent higher than conforming loans because jumbo lenders were perceived as taking more risk making loans that couldn’t be sold to government-backed Fannie Mae and Freddie Mac. This risk translated into higher consumer rates. In the years following the financial crisis, federal regulations have impacted rate markets in such a way that has enabled banks to keep jumbo rates about the same as conforming rates. This dynamic can change over time, ask The Scott Miller Team at Nations Lending.