Jumbo loans exceed the conforming loan limit set by the federal government. These loans, which are usually meant to finance expensive properties, cannot be purchased or securitized by the government-backed entities Fannie Mae or Freddie Mac. Borrowers typically pay more for a jumbo mortgage than a conventional home loan, and qualification guidelines are much restrictive. Jumbo mortgages can be used for primary homes, second or vacation homes or investment properties, and they are available as both adjustable- and fixed-rate loans.
Here are the requirements to qualify:
- A minimum credit score of about 680 to qualify, depending on the loan amount, debt-to-income ratio, and other factors
- A debt-to-income ratio under 43%, although some lenders may require a DTI as low as 36%, depending on the credit score
- Up to one year worth of mortgage payments in reserves which can include savings account and non-liquid assets, like other real estate or jewelry
- A down payment of 15% to 30% (no mortgage insurance on downpaymet of 20% or higher)
- Higher interest rate, as much as 1% to 2% higher than a conventional conforming loan.
- Second appraisal may be required
The following documentations will be required to apply:
- Driver’s license or other photo ID
- Pay stubs from the past month (if W2 employee)
- Tax returns for the past two years
- Documentation to show how down payment will be produced
- A financial statement that shows assets and liabilities
- Credit report which we will order for you
- An appraisal of subject property
A jumbo loan is ideal for:
- Borrowers looking to purchase homes priced above the current conforming loan limit (large or luxury property)
- Borrowers who want to avoid breaking the full loan amount needed into multiple mortgages
Interest rates for jumbo loans are often higher than conforming loans given the higher loan amounts. However, jumbo loans can be refinanced once the loan balance has been paid to below the Fannie Mae and Freddie Mac conforming loan limit.
