Jumbo Loans

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What is a Jumbo Loan?

Jumbo loans allow you to borrow a larger sum of money than a regular conforming loan would. Typically, the loan limit for traditional, conventional loan set by Fannie Mae and Freddie Mac is around $484,000. Typically, Jumbo Loans are considered riskier because they are not financially backed by government entities like Fannie Mae and Freddie Mac.  Each county has a different conforming loan limit, so it is important to check the parameters for each 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 the borrowers FICO score to be 700 or more to qualify for the Jumbo Loan. They are also much stricter on the borrower’s debt to income ratio (DTI). Most lenders will not approve a borrower if their DTI exceeds 45%. 

What is the difference between Jumbo and Conventional Loans?

As you probably already have learned, 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 is very unlikely that a borrower will qualify for a Jumbo Loan without putting more than 10% down. Jumbo Loans typically also warrant larger higher interest rates than a typical loan. Lastly, if you are entering into a Jumbo Loan program, you will probably have higher closing costs.

How do I qualify for a Jumbo Loan?

As mentioned before, if you have an excellent credit score and less than 45% debt to income ratio, you are already on the right track to being an approved Jumbo Loan borrower. 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 a substantial cash reserve before approving the loan. Also keep in mind that you may need to provide more documentation with a Jumbo Loan than you would with going the conventional route. Sometimes underwriters will request financial statements such as full tax returns, 1099’s or investment account statements.