The world of mortgages can be daunting. How much do I need as a down payment? What kind of loan can I qualify for? What is a desirable debt-to-income ratio? Even the product names can seem like you need to do some reading to grasp the terms: FHA, Conventional, ARM.
It’s almost refreshing when a product is exactly what it sounds like. Jumbo mortgage loans are used to finance larger mortgages than their conventional counterparts. But what exactly is the standard? Let’s find out.
What are the current jumbo mortgage rates?
What is a jumbo mortgage?
People use jumbo mortgages to finance loans with balances that exceed conforming loan limits. These are limits the Federal Housing Administration (FHA) sets to qualify for a government-backed loan. For 2022, the conforming loan limit for most of the country is $647,200 and for high-cost areas is $970,800. The FHA defines high-cost areas as places where 115% of the local median home value exceeds the baseline conforming loan limit, and the conforming loan limit is set at 150% of the standard conforming loan limit. According to Fannie Mae, high-cost areas can be found within the following states: California, Colorado, Connecticut, District of Columbia, Florida, Idaho, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Tennessee, Utah, Virginia, Washington, West Virginia, Wyoming.
According to Redfin, a real estate brokerage, home prices nationwide were up almost 7% year-over-year in August 2022. And this is no surprise. Home prices have been increasing steadily for a while now, having steadily increased since the housing bubble burst in 2008 to the point where they are now higher than before the market crashed, something that has been pushed even further by the pandemic.
Because of these factors, jumbo loans might start to look like a more viable option to more people than it has in the past. So, should you consider one? Let’s take a closer look at jumbo loans, their pros and cons, what it takes to qualify for one and how they compare to conventional loans.
Jumbo mortgage pros and cons
With every mortgage product, there are several things to consider. There is no one-size-fits-all product, and a jumbo loan may or may not be your best option. To help you decide, here are some points both for and against going with a jumbo loan for your financing needs.
- The main benefit of a jumbo loan is increased funding. For some borrowers, it may even be their only option if they want to buy in an area with higher-than-average home prices.
- Lenders are more selective when approving jumbo mortgage loans, often requiring higher credit scores, higher down payments and lower debt-to-income (DTI) ratios.
- Closing may take longer than with a conventional loan due to the stricter vetting process for properties.
- Some lenders may require you have up to a year of mortgage payments in your cash reserves.
- They don’t qualify for federal programs.
Jumbo vs. conventional loans
You’ll typically need a score of over 700 to secure a jumbo mortgage, though it may be possible to get a jumbo loan with a score of around 650. In the past, lenders have accepted down payments as low as 5%, but in light of current market conditions, 20% might be a more realistic expectation. The DTI ratio for a jumbo loan is also a bit more demanding, with 35% being the norm.
Jumbo mortgage FAQs
When is a jumbo loan worth it?
Jumbo loans are only necessary for financing properties that exceed conforming loan limits. If the property you’re looking to purchase is within these limits, there are likely better options available.
How to qualify for a jumbo loan
While the “jumbo” in jumbo loan refers to the loan amount, it’s hard to escape the fact that most qualifying factors are also “jumbo” in nature. The FICO score requirement is over 700 for most lenders. A 20% down payment is a requirement — not an option you can offset with mortgage insurance the way you can with a conventional loan.
You may also be required to have cash reserves representing up to a year of mortgage payments, and the closing time may prove longer than with a conventional loan, as the property vetting process is stricter and, therefore, more time-consuming. The only requirement that is smaller on a jumbo loan is the DTI ratio, but that only serves to make it more strict in terms of approval.
How can I find the best jumbo rates?
What makes our data different?
Money’s daily mortgage rates show the average rate offered by over 8,000 lenders across the United States over the last 7 days. Our rates reflect what a typical borrower with a 700 credit score might expect to pay for a home loan right now. These rates were offered to people putting 20% down and include discount points.
Disclaimer: We try to keep our information current and accurate. However, interest rates are subject to market fluctuations and vary based on your qualifications. Calculator results assume a good credit score and factor-in regional averages; your actual interest rate may differ. Calculator results are for educational and informational purposes only and are not guaranteed. You should consult a licensed financial professional before making any personal financial decisions.