What is a Jumbo Loan?
Jumbo loans allow you to borrow a larger sum of money than a regular conforming loan would. In 2023, the conforming loan limit set by the Federal Housing Finance Agency (FHFA) is $726,200 in most U.S. counties. Typically, jumbo loans are considered riskier because they are not backed by government entities, such as Fannie Mae and Freddie Mac. Each county has differing conforming loan limits, so it’s important to check the parameters for your county before starting the loan process.
Although jumbo loans allow borrowers to take out a larger loan balance, it also means they have much stricter credit score requirements. Most lenders will require a FICO score of 700 or more to qualify. They are also much stricter on borrowers’ debt-to-income ratios (DTIs). Most lenders will not approve a DTI exceeding 45%.
What is the difference between Jumbo and Conventional Loans?
The main difference between a jumbo loan and a conventional loan is the size of the loan. Non-conforming loans require larger down payments. It’s very unlikely that a borrower will qualify for a jumbo loan without putting more than 10% down. Typically, jumbo loans also warrant higher interest rates than conforming loans. Lastly, if you are entering into a jumbo loan program, you can expect higher closing costs.
How do I qualify for a Jumbo Loan?
If you have an excellent credit score and less than a 45% debt-to-income ratio, you are already on the right track to being approved for a jumbo loan. You are also more likely to be approved for a jumbo loan if you have an ample amount of cash in your bank account. Underwriters like to see that borrowers have substantial cash reserves before approving the loan. Also, keep in mind that you may need to provide more documentation with a jumbo loan than you would with a conventional loan. In fact, sometimes underwriters will request additional financial statements, such as full tax returns, 1099’s, or investment account statements.
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