Requirements for Jumbo Loans

A mortgage loan can be either conforming or non-conforming. Loan limits are set by the county and take into consideration the average home costs and income in that area. If a home is over those limits, it is classified as a non-conforming or jumbo mortgage.

What is a Non-Conforming Jumbo Loan?

A jumbo loan is a mortgage loan that exceeds the conforming loan limit for an area. These loans are considered “non-conforming” because they aren’t guaranteed by Fannie Mae or Freddie Mac due to their higher risk.

If you need a loan even $1 more than the conforming loan limit, you'll need to go with a jumbo loan. Another name for a jumbo loan you might hear is a portfolio loan. Since these don’t adhere to the government’s conforming limit—and aren't backed by Fannie Mae or Freddie Mac—lenders who approve jumbo mortgages often keep these loans as part of their portfolio, rather than sell them off.

Jumbo Loans and Credit Scores

Since jumbo loans are a riskier product for mortgage lenders, getting approved requires a little more work. Lenders like to see a high income and an excellent credit history. Each lender sets their own minimum credit score requirement for a jumbo loan. In most cases, though, you’ll need a FICO credit score of at least 700. Also, the lender may require a debt-to-income ratio (DTI) no higher than 38%, although you may be allowed a DTI up to 43% if you have a large down payment.

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Your Jumbo Down Payment

While conforming mortgage loans may require a down payment as low as 3% to 5%, jumbo loans require larger down payments. So, don’t be surprised if you’re asked to put down an amount much greater than that.

Some lenders may allow a down payment as low as 5% or 10%. In this case, you would likely agree to a higher interest rate to help offset the risk. Also, if you get a jumbo loan with less than 20% down, you'll have to pay private mortgage insurance (PMI).

Along with needing enough cash for a down payment and closing costs, some lenders require cash reserves for jumbo loan programs. Plan on having at least three months' worth of monthly payments in the bank at closing, in the event of a job loss. You should also be prepared to provide copies of your bank statements.

Are There Jumbo Loan Limits?

Unlike conforming loans, there are no specified loan limits for a jumbo loan. Lenders set their own maximums, which could be up to $1 or $2 million. Ultimately, the amount you're able to borrow will depend on your lender's requirements as well as your income, current debts, credit history, and down payment.

How to Apply for a Jumbo Loan

If you’re looking for a property in a pricier area or to buy a luxury home, a jumbo loan can help you get the home of your dreams. To learn more about non-conforming loans, contact one of our experienced loan officers.

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