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Jumbo Loan Limits – Go Higher!

Introduction

What is a jumbo loan?  Jumbo loan mortgage financing over the minimum limit was created for more expensive home purchases.  This is the difference between a jumbo loan vs. conventional financing.   How much is a jumbo loan when conventional financing is not an option?  What are jumbo loan refinance rates?  These topics and more are covered here.

What is a jumbo loan?

The Federal Housing Finance Agency (FHFA) sets the maximum loan limits for conventional conforming mortgage loans.  Jumbo loans allow higher loan amounts. So, what is a jumbo loan?

Learn more about FHFA limits through this site.

Approval for a jumbo mortgage can be more difficult requiring lower debt-to-income ratios, higher down payments, and higher cash reserves.  Your Real Mortgage Consultant with Winner’s Mortgage, the gold standard, will help you navigate the approval process.

Review the differences between jumbo loans vs. conventional loans.

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

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

FACTORSJUMBO LOANSCONVENTIONAL
Loan SizeHigher than the conventional loan limit (2022: $647,200)Less than the conventional loan limit (2022: $647,000)
Down payment10% to 20%As low as 3%
Interest ratesUsually slightly higher than conventionalUsually slightly lower than jumbo
Closing costs and feesHigher than conventionalLower than jumbo
Loan approvalHigher underwriting standards, more strict approvalConventional loan approval can be somewhat more lenient
Risk to lenderHigherLower

Loan Size

As of 2022, the maximum conventional conforming loan limit is set at $647,200 for single-family homes by the FHFA.  Two to four unit properties and high-cost areas have higher limits.

Conventional (not government insured) or conforming (meeting Fannie Mae or Freddie Mac standards) loans are under the FHFA limits. Jumbo Loans allow financing higher than these limits.

Down payment

Conventional loans allow low down payments. USDA and VA loans allow zero down payments. In contrast, what is a jumbo loan requirement?  Although jumbo loans can require as low a down payment as 10% (requiring mortgage insurance), normally 20% is best.

Interest rates

Historically, jumbo loan interest rates are higher vs. conventional financing, often about .5% higher.

Closing costs and fees

Jumbo loan closing costs and fees are considerably higher vs conventional loans.

Expect higher fees for jumbo mortgages, especially for fees that are based on the loan amount, such as:

  • Origination Fee
  • Discount Points
  • Private Mortgage Insurance for some jumbo loans
  • Title Insurance

Application process

With higher loan amounts for jumbo loans, a mortgage application will receive even more scrutiny than for a conventional loan.

Risk

Lenders experience a higher risk for jumbo loans vs. conventional loans with even higher funding amounts.

Why should you choose the Jumbo Loan?

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

Avoid Limit Restriction

What is the primary benefit of a jumbo loan?  Jumbo loans provide the ability to borrow higher than the FHFA loan limit. So, higher loan amounts are the primary difference between jumbo loans vs conventional.

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

Mortgage Insurance

How much is jumbo loan mortgage insurance? Most jumbo loans with loan-to-value (LTV) ratios over 80% do require mortgage insurance, although there are exceptions. Since jumbo loans do not need to follow conforming loan guidelines, lenders have more flexibility in designing their programs.  Some lenders do not require mortgage insurance over 80% LTV, even with the higher risk.

Competitive Interest Rates

Normally, conventional interest rates are typically lower vs. rates on jumbo loans.  In early 2022, jumbo rates actually declined abnormally  lower relative to conventional rates.  This can make jumbo loans more attractive for people who can afford the higher loan amounts and payments that accompany the higher jumbo loan limits.

Jumbo loan refinance rates are also more attractive in early 2022 compared to conventional rates.

Most importantly, though, when considering interest rates, please understand this rock-solid truth from Winner’s Mortgage.   Discover 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, understand the different types. Since jumbo loans are not tied to conforming loan guidelines, lenders have more flexibility in designing jumbo programs.

Home Purchase

The higher loan amounts available is the major difference between the jumbo loan vs the conventional when purchasing a home.  Starting at the conventional limit of $647,200 for most areas, up to $970,300 for high cost areas, jumbo loans fill the higher priced range for home purchases.

Land Purchase

Jumbo loans are available to purchase land up to 40 acres.

For more than 20 acres, specific requirements apply.  How much a jumbo loan is depends these requirements:

  • 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 higher the loan amount, the lower loan to value ratios will be required.  This reduces risk to the lender since as a non-conforming product the loan cannot be sold to Fannie Mae or Freddie Mac.

Cash-out Refinance

The jumbo loan can be used for a cash-out refinance either for a lower rate or cash out.  Qualifying can be more difficult since lenders are more stringent due to the higher loan amount.

For example, with a cash out jumbo loan, how much available cash you can obtain is dependent on the loan to value.

Do I qualify for the jumbo loan?

Qualifying for the jumbo loan is more strict vs the conventional loan. Lenders require a more rigorous qualification process due to the greater risk of the larger jumbo loan limit.

Although qualifications can vary among lenders, some requirements can include:

  • A minimum credit score of 660.
  • A maximum debt to income ratio of 43%.
  • A maximum loan to value ratio of 80%.
  • A maximum of four mortgaged properties.
  • No bankruptcies in the last seven years.
  • Proof of sufficient cash and other liquid reserves.

Credit Score

To qualify for the mortgage and the larger jumbo loan limit, a higher credit score is vital.  With a minimum requirement of 680, borrowers with a 700 to 720 FICO score or higher have an even better chance to qualify.

The exact credit score requirement varies among lenders. Typically, borrowers with credit scores below 660 to 680 will not qualify. This is one example of how qualifying for a jumbo loan is more difficult than a conventional loan.  Borrowers could be qualified for a conventional loan in the lower 600s range.

Debt-To-Income Ratio

The debt-to-income (DTI) ratio is also important. A lower DTI is preferred, especially for jumbo loans. Lenders determine their specific DTI ratio to qualify, generally with a maximum of 43%.

Conventional loans can allow higher DTI ratio requirements than jumbo, although borrowing with a higher DTI is not recommended.  A lower DTI is better for both the lender and the borrower.  The lender requires a lower jumbo DTI due to the higher risk of the higher loan amount.  For you as the borrower, a lower DTI makes it more likely you can be free of that loan sooner.

Asset & Cash Reserves

Since qualifying is more difficult for this mortgage with a jumbo loan limit, proof of more reserves helps.  Higher asset and cash reserves improve your approval prospect with lenders proving your ability to pay.

Asset and cash reserves are currencies that are liquid, readily available, and easily transferrable.  Examples include cash in the bank, investments, retirement accounts.  Reserves must be held in verifiable accounts.  The more convertible it is into cash quickly, the more it helps.  Sufficient cash reserves is seen by lenders as additional support to pay the loan.  Many lenders can require a one-year reserve of loan payments.

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

What is required for a jumbo loan?  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 allow lower down payments, jumbo loans require larger down payments.

A minimum down payment of 10 percent is required for a jumbo loan.  At 10 percent down, private mortgage insurance will be required.  Some lenders will require down payments, as much as 20 percent to 30 percent.  A 20 percent or more down payment will remove the need for mortgage insurance.

Interest Rates

Historically a jumbo loan has had higher interest rates, both for a home purchase and a refinance.  Due to the higher loan amount and higher risk of jumbo loans, jumbo rates have been higher than conventional. In early 2022, jumbo loan rates actually declined lower than conventional rates.

Closing Costs

Closing costs are relatively higher when considering how much a jumbo loan is, especially for the origination fee and title insurance. Due to a more stringent review process, lenders may charge higher fees for underwriting, processing, etc.

How does a Jumbo Loan work?

What is a jumbo loan and what needs to be considered in the loan process?  Here are 5 points to note.

1. Deciding on the Loan Type

The first point is to decide on the type of jumbo loan needed. These are discussed in the previous section, “What are the different types of Jumbo Loans to consider?”

As a jumbo loan not subject to conforming guidelines, there can be more flexibility with the uses of a jumbo loan.  The jumbo loan can have more flexibility and is less limiting to borrowers than conventional loans.  This includes the ability to purchase types of properties not available with conventional financing.  The loan amount can be higher than conventional financing.  Lenders set the guidelines, not agencies such as Fannie Mae or Freddie Mac with their conforming guidelines.

In addition to purchase loans, a borrower can refinance a jumbo loan for a lower interest rate or cash out.

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

WIN with what a jumbo loan is and avoid losing due to the risk of higher loan amounts and the more difficult qualifying process.

Winner’s Mortgage exclusive Winner’s Mortgage Program will have even more value with the jumbo loan process.  Add the free gift you receive with the Winner’s Mortgage Master Plan and you receive huge value to WIN with your mortgage.  This is especially important with jumbo loans, particularly with the larger loan amount and higher risk.

Get started with Winner’s Mortgage at the “Get Started” Client Questionnaire loan application. Winner’s Mortgage won’t let you down.

Winner’s Mortgage also coaches you step-by-step in the entire lending process with the Winner’s Mortgage Program and the Winner’s Mortgage Master Plan. You expect the best. We demand it!

3. Credit and Loan Review

Jumbo borrowers will undergo a more thorough credit inspection. This review is vital to establish rates and eligibility for a jumbo loan refinance or home purchase.

A loan review includes checking the credit history and score, the DTI ratio, plus cash and 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:

  • Excellent Credit Score: minimum 680, better to be 720 or above
  • Lower DTI Ratio: less than 43% (even better to be under 38% or even less)
  • Asset Reserves: One year of Mortgage Payments is best (the more the asset reserves are cash or easily convertible to cash, the better)

4. Documentation: Requirements Review

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

More extensive documentation is a necessary requirement to apply for what the jumbo loan needs. The jumbo loan limit is larger and demands a more thorough process.

Income is verified as follows:

Employed Borrowers

  • Most recent pay statements
  • last two years of W-2 forms

Self-employed Borrowers

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

Cash reserves are verified by

  • Bank statements, usually the last two months
  • Investment account statements, the most recent quarterly statement

Credit is verified by

  • Your credit report and credit score

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, have historically been higher than conventional, although that has changed in early 2022.  Normally, higher rates compensate for the risk that lenders have when funding the loan. From a 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 higher values, 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.  Lenders will require at least one additional appraisal, so expect this.

This is a simplified overview of the process you can expect when applying for this mortgage. To further understand what a jumbo loan is let your accomplished Real Mortgage Consultant at Winner’s Mortgage guide you through the process.  Take advantage of the exclusive Winner’s Mortgage Master Plan and Winner’s Mortgage 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.

Your Real Mortgage Consultant with Winner’s Mortgage can help you decide.

How much is a jumbo loan depends on factors like your financial health and the loan type to determine the cost. The amount you can borrow is higher when comparing it to a conventional loan. The second question takes a more personal approach to know the right mortgage for you.

A jumbo mortgage is for borrowers who do not want to be limited by price for their home purchase and refinance plans – and that they can afford it. If the property you want to purchase goes beyond the maximum loan amount set for conforming loans, a jumbo loan might be an option for you. This, of course, assumes that it is right for your long-term financial freedom.

A jumbo loan can work to purchase a second home, vacation home or an investment property.  Talk with your Real Mortgage Consultant to determine if it may be a good strategy for purchasing these types of properties.

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

Purchasing your home or property with a jumbo 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 Winner’s Mortgage.  Winner’s Mortgage gets the job done.
  2. Consider your financial situation before borrowing on a jumbo loan.  Is it the right financial move for you?  Your Real Mortgage Consultant 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 you.

Deciding to borrow money with a jumbo loan is a big decision and will have a major impact on your financial life.  Don’t take it lightly.  Get the assistance of your Real Mortgage Consultant.  Do everything possible so you can WIN with a jumbo mortgage, not lose.  Get started here at this link. The choice is as clear as crystal.

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