Jumbo Loans 101

By Tim Wilson, Chief Executive Officer, President, Prosperity Home Mortgage.

Oct 201617

Jumbo Loans 101

By Tim Wilson, Chief Executive Officer, President, Prosperity Home Mortgage.

You’ve found your dream home; so what’s next? If the house you have your heart set on is more expensive than your current home, you may need a different type of loan—and that’s where jumbo loans come in.

What is a Jumbo Loan?

Simply put, a jumbo loan is a loan for a larger-than-average amount of money, but what that means actually differs from state to state. In most areas, a loan above $417,000 is considered a jumbo loan. In higher-priced areas like Washington, D.C., and Philadelphia, that number increases to $625,500.

Qualifications for Getting a Jumbo Loan

Lenders look at many of the same factors whether they’re approving a standard conforming loan or a jumbo loan. The requirements for a jumbo loan, however, are more stringent:

  • Credit Score: Most lenders want jumbo loan applicants to have a minimum credit score of 720 (as opposed to 620 for conforming loans).
  • Income: Applicants need to provide verification that they have enough income and/or assets to cover the higher monthly payments.
  • Debt-to-Income Ratio: Rules around your debt-to-income ratio, or DTI, are more stringent for jumbo loans than they are for conforming loans. DTIs for conforming loans can sometimes be as high as 45 to 50 percent, while lenders want to see a DTI of less than 43 percent for a jumbo loan, with some lenders limiting it to 40.
  • Down Payments: Depending on the size of the loan, down payments will range from 5 to 20 percent, if not higher.
  • Loan Amount: The maximum amount a buyer is able to borrow typically ranges from $2 to $3 million.

Jumbo Loan Considerations

There are a lot of factors to consider when applying for a jumbo loan, but if you have all of your ducks in a row, it can be a big help in getting the home you’ve always wanted. Buyers who are applying for a jumbo loan for the first time are generally using it to upgrade their primary home, but qualified buyers can also secure one for a second or a vacation home. They can also be used for refinance loans, including cash-out refinancing.

Jumbo loans come with many different options, depending on the amount of money being borrowed and the down payment amount. For instance, fixed rate loans, as well as ARMs (adjustable rate mortgages) are both available. Jumbo loans can also have higher interest rates than conforming loans, but there are mitigating factors that can bring that down. The bottom line is the jumbo loan process, like other parts related to buying a home, can be difficult to navigate. That’s why it’s important to find a lender you trust who can guide you through the process and into the home of your dreams.