What is Jumbo Financing or Jumbo Loans?
Just like it sounds, jumbo mortgages are home loans that are bigger dollar value loans than your typical conventional mortgage loan. Standard loans that are considered ‘conforming loans’ by Fannie Mae and Freddie Mac set a limit for how large a loan can be before being considered jumbo or non-conforming. If you are looking to finance over $726,200 in most areas, which is the maximum amount for a conforming loan as determined by the Federal Housing Finance Agency (FHFA) (up to $1,089,300 in certain qualifying areas), then you will need to secure jumbo financing. (Note: these amounts are evaluated each year and are subject to change.)
Although the homebuying process is similar, qualifying for a jumbo loan is a bit different than qualifying for a conventional loan. Given that the lender is not protected from loss if a borrower defaults, jumbo loans are considered riskier because they can’t be guaranteed by Fannie and Freddie. For this reason, jumbo loans may have more stringent underwriting requirements, such as:
Higher credit score requirements
Your credit score is a numerical rating of how consistent you are as a borrower. To qualify for a jumbo loan some lenders may require higher than a 700 FICO® Score.
Larger down payment requirements
While conforming loans typically have various options for low down payments and closing costs, jumbo mortgage loans more frequently require a much higher down payment of at least 10-20%. For a VA jumbo loan, it’s possible to get a loan without a down payment, but it can require a median FICO® Score of 740 or higher.
Debt restrictions
The borrower’s debt-to-income ratio (DTI) is a common factor for consideration that lenders evaluate for any mortgage. However, some lenders may have a tight cap on DTI for jumbo borrowers to help avoid the possibility of them becoming overextended.
Reserve requirements
Borrowers seeking jumbo loan financing may find that the lender may request they show that they have ample cash reserves in the bank, in a retirement fund, or as business/gift funds. It’s not uncommon for lenders to ask jumbo borrowers to have up to 6-12 months worth of expenses in reserve before they can get a loan, and self-employed borrowers may need an additional 6 months' worth of reserves.
Appraisals
Depending on the loan amount (typically over $1 million) an additional appraisal may be required.
So, what do you do if you are wanting to purchase a home that is larger than the conforming loan limits? Sirva Mortgage is prepared to help you secure the home of your dreams by offering financing up to $3 million for non-conforming mortgages. Check out our mortgage qualification calculator to take a glance at your personal numbers.
If you are interested in learning more about our jumbo loan options, please contact one of our professional Mortgage Consultants who would be happy to discuss the various mortgage options with you.
