Every homebuyer’s needs are unique. If your credit history is clean and you’re buying in a region with average-priced homes, a conventional 30-year fixed-rate mortgage might be perfect.
However, sometimes a conventional loan isn’t the right fit. For example, if you are in the market for an expensive dream home or purchasing in an area where home prices are well above average, you might need a jumbo loan.
Read on to learn more about jumbo loans and the requirements for this type of non-conforming mortgage.
The Federal Housing Finance Agency (FHFA) sets loan limits for conforming loans, or loans that can be purchased by Fannie Mae and Freddie Mac. In 2023, the conforming loan limit for a single-unit home is $726,200 in most areas and $1,089,300 in high-cost areas such as Hawaii, Manhattan, and San Francisco.
A jumbo loan is a mortgage that exceeds the conforming loan limit for an area. This non-conforming loan allows qualified borrowers to purchase larger, more expensive homes or buy in exceptionally desirable neighborhoods.
Because jumbo loans don’t meet the requirements to be sold to Fannie Mae or Freddie Mac, lenders assume more risk. To protect their investment, mortgage lenders enforce stricter requirements to qualify for a jumbo loan.
Although a 20 percent down payment is the figure most frequently cited, some lenders require as little as 10 percent down on a jumbo loan. If the loan is under the high-cost limit, you may even be able to put down 5 percent.
Your credit score plays a huge role in whether or not you qualify for a mortgage—jumbo or otherwise. Because of the size of a jumbo loan, many lenders require a credit score of 720 or more. However, some lenders may approve jumbo loans for borrowers with lower credit scores if they meet other qualifying criteria.
Many borrowers think that jumbo loans are only for the wealthy, but this isn’t necessarily true. Homebuyers with more modest incomes can also qualify for jumbo loans if they have significant savings. Cash reserves reassure lenders that you can meet your monthly mortgage responsibility and that you aren’t likely to default on the loan.
Debt-to-income ratio (DTI) is an important metric lenders use to measure your ability to make monthly mortgage payments. To calculate DTI, add up all your monthly debt expenses (e.g., credit cards, car loan, student loans) and divide it by your gross monthly income.
Lenders often have more stringent DTI thresholds for jumbo loans compared to conventional mortgages, but the requirements will vary by lender.
As with any loan application, your lender will check your credit history and ask for documentation to show that your income and assets are sufficient to meet the jumbo loan payback requirements.
Generally, you will be asked to provide:
If you are considering applying for a jumbo loan, it’s important to understand the benefits and drawbacks of this type of mortgage.
Mortgages are not one size fits all. Jumbo loans are just one of many different types of loans homebuyers use to fulfill their dreams of homeownership.
Contact FFB Mortgage Lenders or apply now to speak with an experienced mortgage lender about all of your homebuying options, including jumbo loans and other must-know information for potential homeowners.
(2) Disclosure of rates:
(i) In general. If an advertisement for credit secured by a dwelling states a simple annual rate of interest and more than one simple annual rate of interest will apply over the term of the advertised loan, the advertisement shall disclose in a clear and conspicuous manner:
(A) Each simple annual rate of interest that will apply. In variable-rate transactions, a rate determined by adding an index and margin shall be disclosed based on a reasonably current index and margin;
(B) The period of time during which each simple annual rate of interest will apply; and
(C) The annual percentage rate for the loan. If such rate is variable, the annual percentage rate shall comply with the accuracy standards in §§ 226.17(c) and 226.22.
(ii) Clear and conspicuous requirement. For purposes of paragraph (f)(2)(i) of this section, clearly and conspicuously disclosed means that the required information in paragraphs (f)(2)(i)(A) through (C) shall be disclosed with equal prominence and in close proximity to any advertised rate that triggered the required disclosures. The required information in paragraph (f)(2)(i)(C) may be disclosed with greater prominence than the other information.