A loan is considered Jumbo if the amount of the mortgage exceeds loan-servicing limits set by Fannie Mae and Freddie Mac — currently $726,200 for a single-family home in all states (except federally designated high-cost markets, where the limit is $1,089,300).
A jumbo loan is a mortgage used to finance properties where the loan amount exceeds the current conventional, conforming or high-balance loan amount. The maximum amount for a conforming loan is $726,200 in most counties, as determined by the Federal Housing Finance Agency (FHFA). Homes that exceed the local conforming loan limit require a jumbo loan.
Also called non-conforming conventional mortgages, jumbo loans are considered riskier for lenders because these loans can’t be guaranteed by Fannie Mae and Freddie Mac, meaning the lender is not protected from losses if a borrower defaults. Jumbo loans are typically available with either a fixed interest rate or an adjustable rate, and they come with a variety of terms.
Underwriting criteria for jumbo loans are stricter because the loans are larger and riskier for lenders.
Lenders may require your FICO score to be higher than 700, and sometimes as high as 720, to qualify for a jumbo loan.
Lenders will also consider your debt-to-income ratio (DTI) to ensure you don’t become over-leveraged, though they may be more flexible if you have plentiful cash reserves. Some lenders have a hard cap of 45% DTI, however.
You’re more likely to be approved for a jumbo loan if you have ample cash in the bank. It’s not uncommon for lenders to ask jumbo loan borrowers to show they have enough cash reserves to cover one year of mortgage payments.
To prove your financial health, you’ll need extensive documentation, perhaps more than for a conforming loan. You should be prepared to hand over your full tax returns, W-2s and 1099s when applying, in addition to bank statements and information on any investment accounts.
Some lenders may require a second home appraisal for the property you’re planning to purchase.
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