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Jumbo Loan

Introduction

Getting your dream home can take hard work to get. And it may take even more money to purchase it. Buying your dream home is not impossible though. Perhaps the dream home you would like to buy exceeds conventional loan limits. This is where you can use a jumbo loan and go beyond the limit.  If you are wondering how much a jumbo loan or what its refinance rates are is, continue to read this article. You will even get to know the distinction between a jumbo loan vs a conventional loan. By the end, you will have good knowledge of what a jumbo loan is.

What is a jumbo loan?

The Federal Housing Finance Agency (FHFA) sets limits for conventional mortgages and loans. Every year, the agency sets these limits as a guide for lenders and borrowers. Jumbo loans go to higher loan amounts than these limits. So, what is a jumbo loan?

A jumbo loan is a mortgage that can help you purchase a house that costs more than homes that would be possible with a conventional loan. It is the answer to properties that exceed the loan limits set by the FHFA. Learn more about FHFA limits through this site.

Jumbo loans solve the problems with home loan limits. A property costing more than these limits is impossible to buy with a conventional home loan. These are the typical loans in the high-end real estate market.

Approval for this mortgage demands a more rigorous process. Credit requirements and debt-to-income ratios are strict. To be frank, it can be hard to qualify and obtain this loan. The gold standard in Winner’s Mortgage will help you accomplish it if at all possible.

Check out the difference between jumbo loans vs. conventional loans.

What is the Difference between Jumbo Loan vs. a Conventional Loan?

Are you still not sure about applying for this mortgage? Learning the difference between jumbo loans and conventional loans will help you navigate the process more effectively. There are different factors to consider when comparing both types of loans.

Here is a summary of the differences between the jumbo loan vs. conventional loan.

Loan Size

Mortgages follow the loan limits set by the federal government. Conventional or conforming loans are under the FHFA limits. Jumbo Loans on the other hand go beyond these limits. This is why it is also called non-conforming loans.

Loan limits vary based on states and markets. Single-family units are common. Multi-family units have higher conforming loan limits. Whether single or multi-family units, once you go beyond the loan limit it becomes a jumbo loan.

Down payment

Conventional loans allow low to zero down payments. In contrast, this loan demand a higher down payment. Lenders would most likely ask for at least 20% down. These are the standard down payment requirements for most of these mortgages.

When asked what a jumbo loan is, a down payment is one of the considerations. Some lenders accept less than a 20% down payment. Less than 20% down requires additional stipulations.

Interest rates

Interest rates are different from conventional vs jumbo loans. The former have higher interest rates than the latter. Of course, your credit history will also impact the rate. Rates will vary depending on the lender.

Interest rates for this loan are higher than conventional due to its larger amount.

Closing costs and fees

Jumbo loans closing costs and fees are considerably higher vs the conventional loan. The lending process for this loan needs more qualifying steps. With this, it is expected to have higher closing costs at the table.

Larger mortgages like jumbo loans normally have higher fees. Some of the fees that can be expected are the following:

  • Origination Fees
  • Inspection Fees
  • Title Insurance
  • Service Fees

Application process

The application process for jumbo loans is stricter vs conventional loans. A review of credit requirements is also more careful. The loan amount is bigger than standard mortgages and so requires more steps in the process.

Risk

Risk is an important factor when it comes to conventional vs jumbo loans. Lenders face more risk with larger funding. They will not be guaranteed and protected from losses due to payment defaults.

With this risk, jumbo loans come with specific terms and rates to compensate.

Why should you choose the Jumbo Loan?

Here are the advantages of using this mortgage for your property.

Avoid Limit Restriction

The primary advantage you can benefit from choosing this mortgage is that they go beyond the FHFA loan limit. When discussing what a jumbo loan is, the loan limit is a major emphasis. When comparing jumbo vs conventional loans, the limit is the primary difference.

Jumbo loans allow borrowers to avoid the loan limit restriction and have access to more funds. If you want to buy a property in a more expensive neighborhood, this mortgage is a good option. Through private lenders, strict loan limits can be avoided.

More Flexible Property Options

Conventional loans can also be used for investment property and second homes. Jumbo loans are popular options for the purchase of luxury properties. Some of the property options where you can use this mortgage are:

  • Vacation Homes
  • Investment Properties
  • Second homes and so on

No Mortgage Insurance Requirement

Jumbo loans do not require mortgage insurance. While it poses a high risk for lenders, insurance is not a requirement. Even with jumbo loans that allow a 5% down payment, mortgage insurance is still not needed. Qualifications for borrowers though are more rigid and stricter.

Competitive Interest Rates

Interest rates are the problem some borrowers have with jumbo loans. When comparing conventional vs jumbo loans, conventional is definitely lower. With a large jumbo loan limit, more loans fit in the conventional category.

There are competitive interest rates for jumbo loans even with its refinance. Rock-solid Winner’s Mortgage will show you why the interest rate is not the most important factor when considering jumbo loans. This includes how you can really pay less for your jumbo mortgage.

What are the different types of Jumbo Loans to consider?

When learning what a jumbo loan is, you should also know the different types. This particular mortgage is flexible when considering where you can use it. Here are the different types to learn and know about.

Home Purchase

Jumbo loans can be used for your home purchase. For this type, borrowers can use this mortgage for primary, secondary, and so on. Comparing the jumbo loan vs the conventional, the former offers more options for types of properties.

There will also be strict compliance when it comes to the down payment and credit score. DTI ratio will also be a vital factor to consider.

Land Purchase

If you want to purchase land, you can also use the jumbo loan. This mortgage can be used for land purchases of up to 40 acres. With a land size of more than 20 acres, there are specific requirements.

With a land purchase, the qualifier of how much a jumbo loan also depends on the land size. The requirements needed are also different for more than 20 acres of land to be purchased. These requirements include:

  • An additional 10% or More for Down Payment or Equity Amount (Compared to less than 20-acre land purchase)
  • A search for at least 2 Comparable Properties in the Area (Amounting to no less than 5 acres below the original land to be purchased)
  • The Land Value Should not be More than 35% of Overall Appraised Land & Home Value
  • The Land Should not be for Agricultural Use

Rate or Term Refinance

The jumbo loan can also be used for a rate or term refinance. The amount for refinancing will be limited to the amount of the jumbo loan. These are the requirements.

  • Minimum of 700 FICO Score
  • Maximum of 43%DTI Ratio

The equity amount is also dependent on the loan amount. The higher the loan amount, the higher the equity amount will be.

Cash-out Refinance

The jumbo loan can be used for a cash-out refinance given specific rates and requirements. One requirement is to have a one-unit primary property. For a cash-out jumbo loan, the amount of how much you can get is dependent on your equity amount.

The qualifications and limits for a cash-out jumbo loan include:

  • $300,000 – home equity of 30 to 50 percent
  • $500,000 – home equity of 50 percent or more

These specific guidelines for home equity are limited to primary properties. For second homes and so on, jumbo loans are not eligible.

Do I qualify for this loan?

Qualifying for the jumbo loan is harder vs the conventional loan. Lenders require a more rigorous qualification process. This is because it is riskier for lenders due to the large jumbo loan limit.

To improve your ability to qualify, here are the factors to consider:

  • Credit Score
  • Debt-to-Income Ratio
  • Asset Reserves
  • Cash Reserves

Credit Score

To qualify for the mortgage and enjoy the extensive jumbo loan limit, a credit score is vital. A higher credit score will offer a greater chance for loan approval. Borrowers with at least have a 700 to 720 FICO score have a better chance to qualify.

The credit score requirement will depend on the lenders. Typically, borrowers with FICO scores lower than 660 will not be qualified. This loan is different than a conventional loan this way, where most conventional loans accept a FICO Score of 600.

Debt-To-Income Ratio

More than the credit score; the debt-to-income ratio is also important. Lenders prefer a lower DTI ratio as proof of paying capability. Lenders determine their specific DTI ratio to qualify.

Conventional loans have more lenient DTI ratio requirements compared to these loans. Since this mortgage has a higher amount, it is important to prove you can pay it. If you have a lower DTI ratio, it means you can afford to pay for these loans better.

Since qualifying is more difficult for this mortgage, your proof of reserves will help. Asset and cash reserves will help improve your credit standing for the lenders.

Asset Reserves

To improve your credit standing, having asset reserves is a big advantage. Asset reserves are currencies that are liquid, readily available, and easily transferrable. One example of this is gold. There is a possibility that lenders will demand that you have a one-year reserve of loan payments.

Cash Reserves

Since the jumbo loan limit is large, cash reserves can also be used as proof of your capability to pay. If you have sufficient cash in your savings account, there is proof that you can pay for the loan. Many lenders will look for a 1-year cash reserve worth of mortgage payments. This cash must be in a bank account, it can’t be in currency form.

What are the requirements I need to prepare for when applying for this loan?

In learning about what a jumbo loan is, application requirements are considered. You need to consider the following factors for the application:

Down Payment

Lender guidelines determine how much the down payment is for a jumbo loan. While conventional loans require low down payments, this loan requires a larger amount.

Most lenders require a 20 to 30 percent down payment. Before, a down payment lower than 20 percent of the loan amount is rare for this type of mortgage. The large down payment normally prevents the need for private mortgage insurance.

Today though, lenders offering this mortgage accept as little as 5 percent down payments. And this even comes without the requirement of a PMI. It will of course all depend on the lender.

Interest Rates

The jumbo loan has higher interest rates, both for a home purchase and a refinance. A high loan amount has high risk and lenders consider this. The term length, down payment, and credit score may even affect your rates. It is expected that jumbo loan rates are higher compared to conventional rates.

Jumbo loans for property purchase and refinance also have competitive rates. They are 0.25 to 1 percent more compared to conventional loans. There are even other mortgage loans with higher rates than these loans.

Closing Costs

Closing costs are relatively higher when considering how much a jumbo loan is. The lending process has a more thorough credit review. With this, lenders tend to charge higher closing costs.

How does a Jumbo Loan work?

The real answer to the question “what is a jumbo loan?” lies in how it works. If you want to learn about the lending process, here are 5 simple points to note.

1. Deciding on the Loan Type

The first point is to decide what type of loan you need. The different types have been discussed in the previous section of this article, “What are the different types of Jumbo Loans to consider?”

This mortgage has flexibility and does not limit borrowers compared to other loans. You can buy more types of properties and not be restricted from the loan amount. From vacation to investment properties, you can choose more freely.

There is also the jumbo loan refinance program with its respective rates. You may want to apply for this program or even the cash-out type of loan under it.

2. Consulting an Expert (Winner’s Mortgage Consultation)

After choosing the type of jumbo loan you want to apply for, consult next with an expert. You can understand what a jumbo loan is better through an expert. Start with Winner’s Mortgage at the “Get Started” Client Questionnaire loan application. Winner’s Mortgage will work with eligible and trusted lenders and won’t let you down. This is incredibly vital with these loans, especially with the larger amount and higher risk.

Winner’s Mortgage also coaches you step-by-step in the entire lending process. You expect the best. We demand it! Jumbo loans have a thorough credit review process. See the exclusive Winner’s Mortgage loan process here.

3. Credit Review

Borrowers will undergo a more thorough credit inspection. A credit review is vital to establish rates for a jumbo loan refinance or home purchase. It is also important in knowing one’s eligibility for the loan.

A credit review includes checking the credit score, DTI ratio, and cash/asset reserves. This is discussed in the previous section entitled, “Do I qualify for the Jumbo Loan?” In summary, here are the requirements to be approved:

  • Stellar Credit Score: 700 or above
  • DTI Ratio: Very Low- under 43% (Preferably under 38%)
  • Asset Reserves: One year of Mortgage Payments(Cash or Liquid Asset)

4. Documentation: Requirements Review

In the process of applying for this loan, documentation is important. This is where requirements, down payments, and closing costs will be dealt with.

The requirements will back up the borrower’s eligibility for the loan. The borrower’s capability to pay is proven through:

  • Cash on-hand/Cash Reserves (Worth 6 to 12 months of Mortgage Payments)
  • Possible Investment Accounts

Employed Borrowers

  • Most recent pay statements
  • 1099 & W-2 Forms

Self-employed Borrowers

  • Tax Returns (The last two years)
  • Bank Statements

Extensive documentation is necessary to get approved for this mortgage. This is necessary to apply for the loan and what it entails. The jumbo loan limit is larger and demands a more thorough process.

Other considerations were discussed in the previous section. In summary, here are the requirements discussed:

  • Down Payment: 20 to 30 percent
  • Interest Rates
  • Closing Costs

When considering how much a jumbo loan is, these three factors are considered. The down payment is relatively large compared to conventional loans. It is justified because the loan has a high limit and risk.

Rates, whether for a jumbo refinance or a purchase loan, are also higher. Higher rates will compensate for the risk that lenders will have when funding the loan. From refinance to a home purchase, the jumbo loan offers adjustable and fixed rates.

When checking how much a jumbo loan is, the closing costs are also considered. Since the loan requires a more thorough process, lenders demand higher closing costs.

5. Appraisal

Appraisals are expected in the lending process. The property value is important to figure out how much a jumbo loan is. Every mortgage loan requires a standard property appraisal.

Since the jumbo loan limit is large, a second opinion appraisal is required. With the higher value of this mortgage, the property’s market value is unusual. There will be fewer similar properties available to use in establishing market value.

The appraisal is a defining aspect of what a jumbo loan is. There will be a tendency that each new appraisal will result in a more expensive market value. Lenders will require at least one additional appraisal, so expect this.

This is a simplified process you can expect when applying for this mortgage. To further understand what a jumbo loan is, it is necessary to learn how it works. Let your accomplished Real Mortgage Consultant at Winner’s Mortgage guide you through the process.

Who should take out this kind of mortgage?

How much is a jumbo loan? Is it the right mortgage option for you? These are two of the questions to consider before making a move on that application process.

The first question depends on factors like your financial health and the loan type. The amount you can borrow is higher when comparing it to the conventional loan. The second question takes a more personal approach to answer.

This mortgage is for borrowers who do not want to be limited in their home purchase and refinance plans. If the property you want to purchase goes beyond the standards set by the government, get this loan. This, of course, assumes that it is right for your long-term financial freedom.

If you are purchasing a second/vacation home or an investment property, this is also a good option. It may be the answer you are looking for when purchasing these types of properties.

The real answer on who should take out this particular loan relies on your need. The jumbo loan has a higher risk, but it is flexible in different types of properties with a higher loan limit. If these are what you are looking for, this loan can be right for you!

When is the time to take out a Jumbo Loan?

Taking out this kind of loan is a good consideration. It has a more difficult qualification process and limited lender availability. Despite all these hurdles, it is a good decision to get one when you can. A great time to take out a jumbo loan is when you are buying one of these:

  • A luxury home/property
  • An investment property
  • A home with amenities more expensive than regular homes

The best time to take out a jumbo loan is when you need it.

What are the tips you can use when buying a home using this mortgage?

Purchasing your home or property with this mortgage is a major financial decision. Here are a few tips you can use to help you along the way.

  1. Find a qualified financial expert like Your Real Mortgage Consultant at the Winner’s Mortgage. They will help connect you with the best lenders and guide you in the process. They will get the job done.
  2. Check on your financial health and situation before taking out the loan. Make sure you can pay the loan. Your full-trained Real Mortgage Consultant at Winner’s Mortgage will not want you to proceed if it is not a good financial decision for you. So, ask for help, get the plain, honest truth, and make the best decision for yourself.

Applying for a jumbo loan requires a more rigorous process. A credit review is more thorough and loan availability may be scarce. If you decide on pursuing a jumbo loan, get the help of experts. Start with your Real Mortgage Consultant at Winner’s Mortgage. The choice is as clear as crystal.

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