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A jumbo loan is a type of mortgage loan that exceeds the limits set by the Federal Housing Finance Agency (FHFA) for conforming loans. Conforming loans are mortgages that meet the guidelines set by Fannie Mae and Freddie Mac, the government-sponsored entities that purchase and securitize mortgages. The FHFA sets limits on the size of conforming loans, which vary by geographic location and are adjusted annually based on changes in the housing market. Jumbo loans are used to finance homes that exceed these limits, often for luxury or high-end properties. If you are considering a jumbo loan, it’s important to work with a reputable mortgage broker like Rateplicity.

Overview

The maximum conforming loan limit set by the FHFA for a single-family home in most areas of the United States is $548,250, but in high-cost areas, it can be as high as $822,375. Because jumbo loans represent a higher risk for lenders due to their larger size and unique underwriting requirements, they typically have higher interest rates and stricter credit and income requirements than conforming loans.

To qualify, a borrower will need:

  • strong credit history
  • low debt-to-income ratio
  • a sizable down payment
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Jumbo Home Loan FAQs

Do jumbo loans have higher interest rates?

Compared to loans that conform with the limits set by Fannie Mae and Freddie Mac, jumbo loans have higher interest rates. This is because of the size and risk of the loan. Since it exceeds the conforming loan amount, lenders view this as higher risk. Since they are not backed by the government, jumbo loans come with higher rates to protect lenders. However, interest rates vary with market conditions and it is possible to get a favorable rate with a jumbo loan.

What type of buyer should consider a jumbo loan?

Buyers that are interested in a jumbo loan are obviously going to be looking to purchase a home that has a higher value. This type of loan would be good for high income earners who can afford higher mortgage payments each month. This type of buyer is most likely going to be purchasing a larger home. This could be necessary because of a growing family and a need for more space, extra bedrooms, or additional amenities. This type of buyer might also be looking to buy in a higher-cost area. In vacation areas, homes are generally pricier and may require a jumbo loan. They might also be purchasing an investment property or a second home.

What credit score do you need for a jumbo loan?
For a jumbo home loan, you would generally need a score in the 700s to get approved. A clean credit history is helpful to show lenders that you are reliable and able to repay the loan. In some cases, lower credit scores are accepted if there are compensating factors such as a substantial down payment, low debt-to-income ratio, or significant cash reserves.
What is the debt to income ratio for a jumbo loan?
Your debt to income ratio is something that lenders look at to determine your ability to repay the loan. Typically for a jumbo home loan, you need to have a DTI no higher than 43%. This makes sure that you are able to manage your mortgage payment and other debt obligations with the income you currently have.
Do all jumbo home loans require 20% down?
While a 20% down payment is generally the norm for a jumbo loan, not all jumbo loans require it. This varies based on the lender’s policies, the loan amount, the specific terms of the loan, and, of course, your credit score. If there are risks involved for the lender, such as a high DTI, then they might require a down payment of 20% or higher.