What is a Jumbo Loan?

Jumbo Loans


Summary: A jumbo loan is a type of non-conforming conventional loan that allows buyers to purchase homes above conforming loan limits. Borrowers with jumbo loans or interested in obtaining one will encounter unique qualifications such as higher credit score requirements and having significant assets or savings.

A jumbo loan is a non-conforming conventional loan. They do not follow the guidelines set by the Federal Housing Finance Agency (FHFA). Loan limits set by the FHFA depend on the county the borrower resides in. Jumbo loans allow buyers to purchase homes above conforming loan limits.

If you apply for a mortgage in Oakland County in Michigan, for example, the conventional loan limit is set at $647,200. Over the past two years home values have positively accelerated pushing homes to be listed above the conforming loan limit and driving borrowers to use jumbo loans for their home purchase.

Requirements

If you are considering a jumbo loan for your home purchase, here are a few general requirements:

  • Credit scores for jumbo loans are higher than conventional loans.
  • Minimum down payment depends on the mortgage lender.
  • Buyers are recommended to have significant assets in cash or savings accounts.
  • Home Appraisal
    • Lenders may require two appraisals.
  • A debt-to-income (DTI) ratio of 43% or lower.
    • Mortgage lenders prefer the ratio to be closer to 36%
  • 30 days of pay stubs.
  • Two years of tax returns.

Requirements for Self-Employed Borrowers:

  • Self-employed buyers are recommended to have the following documents:
    • Two years of tax returns
    • 60 days of current bank statements
    • Liquid assets
    • Cash reserves equaling at least six months of mortgage payments
    • Documentation of all loans currently taken out

Jumbo Housing Loan Process

If a jumbo loan sounds right for your home purchase, here is the process:

  1. Find a Mortgage Lender
    • You will connect with a Home Loan Advisor who will check your credit score and guide you through the process.
    • They can also connect you to a realtor if needed.
  2. Gather Your Documents
    • Mortgage lenders may request different or additional documents, but here are the basics:
      • Tax Returns or W-2 for salaried workers
      • Paystub
      • Self-Employed Records
      • Deposit and Investment Account Records
      • Proof of Funds
      • Driver’s License or State ID
  3. Get a Pre-Approval
    • A pre-approval estimates the loan amount, terms, and the loan type available to the borrower.
    • The pre-approval eases the home search journey and guides you towards homes you qualify for.
  4. Shop for a House
  5. Make an Offer
  6. Get an Appraisal
    • An appraisal will help determine your potential home’s value.
    • Certain mortgage lenders will request two appraisals.
  7. Close on Your New Home!
    • Once all documents have been received and approved, it is time to close on your home.

For more information, chat with us at callhallfirst.com or give us a call at 866-Call-Hall.