What is a Jumbo Loan?

A Jumbo loan is a type of mortgage used to finance higher-priced homes or larger properties with loan amounts that exceed the limits set by the Federal Housing Finance Agency (FHFA) for conforming loans. Since these loans do not meet the FHFA loan limits, they are not eligible for purchase by government-backed entities such as Fannie Mae and Freddie Mac. Instead, they are underwritten to individual investor guidelines, which can be more strict.

In 2022, the “low-balance” county loan limit is $647,200, and the “high-balance” limit for high-cost counties is $970,800. For loan amounts that exceed these thresholds, a non-conforming jumbo mortgage is required.

The Role of Investors in Jumbo Financing

Investors are entities that buy mortgages from mortgage banks. At JVM Lending, we have access to an extensive array of investors who will buy jumbo loans. Each investor has its own set of guidelines for things such as minimum credit score, liquid reserves held after closing, debt ratios, and down payment. When we pre-approve jumbo loans, we target the investor with the best terms our clients will qualify for.

Pros and Cons of Jumbo Loans

Pros

• Lower interest rates
• Access to higher loan amounts
• Many loan options

Cons

• Stringent qualification guidelines
• Longer closing timeline
• Higher monthly payment

What’s the difference between a jumbo loan and a conforming loan?

Obtaining a non-conforming mortgage requires more extensive documentation than a conforming loan, ranging from full tax returns, verified housing history, and additional requests for self-employed borrowers. Additionally, jumbo loans have stricter appraisal standards that prevent us from using our panel of hand-picked appraisers in favor of investor-approved appraisers.

Jumbo Loan Requirements

Jumbo loans have stricter debt-to-income (DTI) requirements, higher down payment and reserve requirements, and stricter credit score and tradeline requirements compared to conforming and FHA loans. Borrowers must demonstrate at least 12 months of timely rental or mortgage payments, a certain amount of credit tradelines opened or credit history established, and a minimum credit score of 700.

Potential Loan Structures

Jumbo loans typically come with two rate options – fixed-rate and adjustable-rate mortgages (ARMs). ARMs can have rates as much as 1/2% lower than a 30-year fixed-rate loan.

What’s the alternative?

Combination financing may be an excellent alternative if you’re unable to meet the stringent qualification guidelines associated with jumbo financing. Combination financing consists of two loans – the first at the maximum conforming loan limit and a second loan to “bridge the gap” between your minimum 10.01% down payment and your purchase price.

Is a jumbo loan right for you?

The best way to determine whether a jumbo loan makes the most sense for you is to talk to one of our mortgage experts at JVM Lending. Our experts can walk you through monthly payment scenarios, give you current interest rates, and discuss any other questions or concerns you might have. Apply now or get a quote