What Is a Jumbo Loan, and How Do You Qualify?

  • A jumbo loan is a mortgage for more than the borrowing limit for regular mortgages set by the FHFA.
  • In 2022, a jumbo loan is for a mortgage over $647,200 in most parts of the US. 
  • You’ll have to meet stricter requirements to receive a jumbo loan, including a bigger down payment.
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A jumbo loan, also known as a nonconforming loan, is a type of conventional mortgage. Jumbo loans surpass the limits for conforming loans from the Federal Housing Finance Agency (FHFA). 

The FHFA sets the limit for conforming loans annually. In 2022, the limit is 647,200 in most parts of the US. In areas with a higher cost of living, such as Alaska, Hawaii, Guam, and the US Virgin Islands, the limit increased to $970,800.

Jumbo loans are riskier for lenders than conforming loans. They can’t be backed by Fannie Mae or Freddie Mac, so lenders usually have stricter guidelines for borrowers to receive jumbo loans. 

Things to consider before applying for a jumbo loan

A jumbo loan can help you afford a higher-cost home, but there are some factors to take into consideration before you apply. Each lender has different qualifications for receiving a jumbo loan, but here are some general guidelines you can expect:

You’ll usually need at least 20% upfront

Many lenders accept down payments of 10% or less for conforming loans. For a jumbo loan, lenders require at least 20% upfront, though.

Don’t throw in the towel if you know you don’t have 20% handy. Some lenders, such as Ally and Better.com, only require 10% down.

You’ll need a good credit score

Before lending you hundreds of thousands of dollars, lenders want to know you’re financially responsible. You’ll need a higher credit score to qualify for a jumbo loan than you would for a conforming loan — probably at least 700. But the higher your score, the better rate you’ll get.

You’ll need a lower debt-to-income ratio

Your debt-to-income ratio is the monthly amount you pay toward debts divided by your gross monthly income. For example, if you spend $2,000 per month on your mortgage and student loan payments, and you earn $3,000 per month, your debt-to-income ratio is $2,000 divided by $3,000, or 66%.

Your exact required debt-to-income ratio depends on your lender. The company will likely require a lower ratio for a jumbo loan than a conforming loan. Most ask for a ratio of around 40%, give or take a couple percentage points.

A lower ratio means you owe significantly less than you earn, leading lenders to believe you can afford the high payments that accompany a jumbo loan.

Your rate will probably be higher

As with a conforming loan, your jumbo loan rate will depend on factors like your credit score, down payment, and term length. Usually, you can expect jumbo loan rates to be a little higher than conforming loan rates.

Between the relatively large principal and the higher rate, you have the potential to pay a hefty chunk in interest over the years. This doesn’t necessarily mean you shouldn’t take out a jumbo loan, but it’s something to keep in mind.

Shop around for a jumbo loan lender

During the coronavirus pandemic, some lenders have placed stricter requirements on borrowers asking for a jumbo loan. It’s always important to do your research, but especially during the pandemic, make sure you know whether a lender’s current requirements match what is published on its website.

If necessary, take some time to boost your credit score or save more for a down payment. Taking necessary steps can increase your chances of being approved for a jumbo loan and scoring a lower rate.

Finally, shop around for a lender. Some lenders will require smaller down payments or higher debt-to-income ratios than others, and some will give you a better rate. You may also go through a mortgage broker for a professional to do the research for you.

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