What is a jumbo loan?
A jumbo loan is a type of mortgage that lets you borrow more than the standard or “conforming” loan limits set by the Federal Housing Finance Agency (FHFA). For this reason, jumbo loans are also called non-conforming loans.
If you're on sound financial footing and set on buying a one-of-a-kind property, a jumbo loan might be your way in.
You can use a jumbo loan to purchase a:
- Primary home
- Secondary home
- Vacation home
- Investment property
How do jumbo loans work?
Jumbo loans work like other mortgages, but they’re tailored to buyers who want to purchase high-ticket properties in pricier markets.
When you take out a jumbo loan, the lender can’t sell it to Fannie Mae or Freddie Mac—so the lender keeps it and takes on the full risk.
Jumbo loans come with stringent underwriting rules. Lenders will look more closely at your financial details, including everything from your credit score to your cash reserves to make sure you can comfortably handle the monthly payment.
Jumbo loan requirements
Getting approved for a jumbo loan is all about proving you’re prepared to manage a major investment. Lenders will go over your finances with a fine-toothed comb, but this is a good thing—it helps protect both you and the lender. Let’s take a look at what’s required.
Jumbo loan limits
Every year, Fannie Mae and Freddie Mac work with the Federal Housing Finance Agency, or FHFA (their U.S. regulator) to set the maximum loan amounts they will purchase. Because jumbo mortgages let you borrow more than the FHFA limit, they’re not insured by the government. That extra risk is passed on to the lender, so jumbo loan limits vary based on the lender. Citi’s jumbo loan limits are $832,750 in most U.S. areas and up to $1,249,125 in high-cost areas for single-family homes.
Jumbo loan interest rates
Jumbo loan interest rates are influenced by market conditions and the level of risk involved. To manage the increased risk associated with these larger loans, lenders often implement strategies such as setting higher interest rates.
The good news is that jumbo loan interest rates may still be quite competitive, especially if you have an impressive credit score and a low debt-to-income ratio, you could be in a good position to get a favorable rate.
Jumbo loan down payments
Jumbo loan down payments vary by lender. Remember, the bigger the loan, the more skin lenders have in the game. So, if your heart is set on a particularly pricey property, it’s best to be prepared to put down a substantial chunk of change to make that dream come true.
You’ll want to make sure you’ve got enough in the bank to handle at least six to twelve months of mortgage payments, including property taxes, homeowners insurance and any HOA fees. Lenders may need to see that you can keep up with payments, even if things get a bit tight financially.
Jumbo loan mortgage insurance
Typically, if you make a down payment of less than 20%, you'll need to pay for private mortgage insurance (PMI) on your jumbo loan.
PMI is a type of mortgage insurance that protects the lender in case you default on your loan. PMI costs can be significant, particularly for jumbo loans, but there may be some exceptions. Chat with a mortgage specialist to see what works best for you.
PRO TIP
Certain types of properties may face restrictions when qualifying for a jumbo mortgage. While single-family homes generally qualify, there could be additional requirements for condos, multi-unit properties or investment properties. Check with your lender for details.
Jumbo loan credit score
Because of the larger loan amount, the credit eligibility requirements can be more rigorous. Lenders usually extend jumbo mortgage loans to highly qualified consumers. It should come as no surprise that your credit score will play a pivotal role in the jumbo loan picture. You’ll probably need a minimum score of 700. However, for larger loan amounts, be prepared for lenders to expect even more. They need to be sure you’re a qualified borrower for such a significant financial commitment.
The takeaway: Keeping an eye on your credit report is a must if you’re diving into the high-end housing market.
Jumbo loan DTI
Similarly, the debt-to-income (DTI) ratio is key. Lenders may want to see a DTI ratio no higher than 43%, but they often prefer if it’s even lower, around 36%. This helps ensure that you’re not taking on more debt than you can handle, which is a win-win for all parties. Keeping your debt low is the way to go when you're looking to buy in a high-cost area.
Jumbo loan income requirements
Lenders will expect borrowers to demonstrate their ability to pay the higher loan amount. A healthy salary is essential, but for a jumbo home loan, lenders are particularly focused on income stability. They'll ask you for documented proof that your income has been consistent over the past few years.
You will likely need to provide proof of income with W-2s or tax returns from the past two years, recent pay stubs, bank statements and proof of any commissions or bonuses you’ve received. If you’re self-employed or own a private business, you may need to provide financial reports for the business.
How is a jumbo loan different from other loans?
Let’s look at how a jumbo loan compares to a conventional loan.
| Feature | Jumbo Loan | Conventional Loan |
|---|---|---|
Loan Limits | Exceeds the conforming loan limits set by Fannie Mae and Freddie Mac | Within the conforming loan limits set by Fannie Mae and Freddie Mac |
Interest Rates | Typically higher due to the increased risk to lenders | Generally lower compared to jumbo loans |
Down Payments | Usually 10-20% or more | Can be as low as 3% for qualified buyers |
Credit Score Requirements | Higher credit score required, often 700+ | Lower minimum credit score, typically around 620 |
Debt-to-Income Ratio | Stricter, usually around 43% or lower | More flexible, can be up to 50% with strong credit |
Loan Approval Process | More stringent, due to the larger amount being borrowed | Generally less stringent |
PMI (Private Mortgage Insurance) | Not typically required, due to the higher down payment | Required if down payment is less than 20% |
Applying for a jumbo loan
Here are some steps you should expect to take if you decide to apply for a jumbo loan:
1. Check your credit score
Jumbo loans have stricter credit requirements due to the higher loan amounts.
2. Gather required documents
You will need comprehensive documentation for a jumbo loan, including detailed proof of income, tax returns, extensive employment verification and a complete list of assets and liabilities.
3. Get pre-approved
Pre-approval is extremely valuable—especially for a jumbo loan—because it helps show buyers you’re serious, giving you an edge when bidding for houses in a competitive market.
4. Submit your mortgage application
Once you’ve found your perfect home, it’s time to submit your jumbo loan application along with all the necessary documentation.
5. Loan processing and property appraisal
The lender will assess your financial background, conduct a thorough credit check, and appraise the property to ensure it can support the loan amount.
6. Closing the loan
If your application is approved, the final step is closing, which involves signing the loan agreement, paying any applicable closing costs and finalizing the loan. Keep in mind that closing costs for jumbo loans may be more expensive than those of conforming loans, since the home's purchase price is higher.
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