What is a Jumbo Loan?
Another name for a jumbo mortgage is a non-conforming mortgage. This is a loan a lender makes you that doesn’t “conform” to the guidelines of Fannie Mae and Freddie Mac. Fannie Mae and Freddie Mac only buy mortgages meeting their guidelines for down payment, credit score, post-closing reserves, and loan amount. As of January 1, 2023 Jumbo loan amounts will start at one dollar higher than the conforming loan limit of $726,200.
Jumbo mortgages have the same overall qualifying methodology as a conforming loan. Lenders will look at your FICO credit score, down payment amount, total monthly debt obligations relative to your income (DTI), and cash reserves.
Typically, Jumbo lenders want to see 6-12 months of reserves after the close, half liquid (in a checking or savings account), and no more than half calculated from retirement assets. Reserve exceptions are available if your debt-to-income ratio is low and your down payment is high.
What are some of the benefits and requirements of a Jumbo Loan?
- Jumbo Loans allow you to buy a home that is more expensive than the conforming loan limits.
- Jumbo Loan Limits vary by state but you can typically finance up to 1.5 Million of your home purchase.
- Jumbo Loans may require a minimum down payment of 10%.
- Jumbo Loans will require mortgage insurance if your down payment is lower than 20%.
- Although most jumbo loans max out at 43% DTI (Debt-To-Income Ratio). There are some exceptions where you may qualify with a higher DTI Ratio if you have compensating factors such as substancial cash reserves.