Jumbo Loans

What is a Jumbo Mortgage Loan?*

A jumbo loan is any home loan that exceeds conforming loan limits set by the Federal Housing Finance Agency (FHFA) for mortgages acquired by Fannie Mae and Freddie Mac. For most homebuyers, the maximum loan limits in 2017 for one-unit properties will be $424,100. Loan limit for multiple unit buildings are higher. Created by Congress in 1938 and 1970 respectively, Fannie Mae and Freddie Mac provide stability and affordability to the mortgage market by buying “conforming” mortgages from lenders, which gives lenders liquidity to make more mortgages.

In higher cost areas, which include some counties in Colorado near Denver, that amount is higher, as much as $636,150 for a single family home. Multi-unit buildings in these areas have an even higher threshold.

Jumbo mortgages, also called non-conforming loans, are available for primary residences, second or vacation homes and are available for a variety of terms that include fixed-rate and adjustable loans. Jumbo loans typically have higher interest rates, stricter underwriting rules and require a larger down payment than standard mortgages.

The Housing and Economic Recovery Act of 2008 (HERA) established the baseline loan limit that defines jumbo mortgages in 2008. The act allows for the baseline loan level to increase in January each year, dependent upon the average U.S. home price. In counties where average home prices are higher, the baseline price is also higher. Click here to see loan limits in your county.


*Eligibility subject to program stipulations, qualifying factors, applicable income requirements, and property limits. This is not an offer to enter into an agreement. Not all customers will qualify. Information, rates and programs are subject to change without notice. All products are subject to credit and property approval. Other restrictions and limitations may apply. *Eligibility subject to program stipulations, qualifying factors, applicable income requirements, and property limits. This is not an offer to enter into an agreement. Not all customers will qualify. Information, rates and programs are subject to change without notice. All products are subject to credit and property approval. Other restrictions and limitations may apply.

 

Qualifying for a Jumbo Mortgage

The underwriting process for jumbo mortgages is similar to that of conforming loans, but does have distinct differences. Often, two appraisals instead of one are necessary.  Jumbo loans generally require high down payments, usually at least 20%, but that amount could be as low as 15% or as high as 30%.

Other requirements are also tougher because of the riskier nature of these loans. These include:

  • An excellent credit history with a FICO score of 700 or higher
  • Larger reserve assets of six to 12 months to cover the monthly mortgage payment, including principle, interest and escrow (if applicable). Typically, half of your reserves must be liquid, in a checking or savings account, while the other half can come from retirement assets

 

Jumbo Loan Flexibility

Although jumbo loans have more stringent qualifications, they have some flexibility that conforming loans do not:

  • High-debt-to-income ratio. Conforming loans with down payments of 20% or higher usually require that your total monthly housing payment and all of your other monthly bills don’t exceed 43% of your income. However, non-conforming loans can be flexible on this point if you have substantial documented cash reserves left over after closing. Thus you may be able to get a loan with a higher debt-to-income ratio.
  • Flexible income calculations. Most conforming loans require you to show two years of self-employed tax returns if you own a business. However, for jumbo loans, if you start a business in the same industry in which you previously worked, you may only need to show one year of returns if you can prove that the business is profitable.
  • No mortgage insurance with less than 20% down. You may be able to get a jumbo loan with a down payment of as little at 10% for loan amounts of $1 million and higher. These low down payment jumbo loans don’t always require mortgage insurance. The trade-off is your rate will usually be slightly higher, about .25%, while the debt-to-income ratio must be lower at approximately 30% to 36%.

 

VA Jumbo Mortgages**

If you or your spouse is a current or former member of the U.S. armed services, you may qualify for a jumbo loan or a jumbo refinancing loan under VA rules. Like other VA loans they offer more flexible requirement and may give you that ability to purchase a larger property that you would not be able to under conventional means.

Benefits of VA jumbo loans include:

  • Allows up to a 90% refinance limit, which is higher than most conventional loans
  • No PMI for refinancing
  • No prepayment penalties
  • Assistance to veterans in default due to temporary financial difficulty
  • Ability to roll the VA funding fee into the refinance amount
  • Loan-to-value of up to 100%, meaning in some cases, you may not have to save for a down payment


**VA loans must conform to secondary market requirements, which include the minimum 25% coverage requirement. Coverage is a combination of VA provided entitlement plus cash down payment or equity.
***VA loans subject to individual VA Entitlement amounts and eligibility, qualifying factors such as income and credit standards, and loan limits. Must present valid Certificate of Eligibility (COE) at time of application.

 

Common Questions About Jumbo Loans

How much money can I borrow with a jumbo loan?

Depending on your circumstances, you may be able to borrow as much as $3 million with a jumbo loan.

Can I expect to pay a higher rate with a jumbo mortgage?

In the years immediately following the Great Recession, jumbo mortgages had interest rates that were at least .25% higher than those for conforming loans. However, federal regulations have impacted rates in such a way that rates for jumbo loans are about the same as those for conforming mortgages. The exception is loans over $1 million where the .25% higher rate still applies.

Are ARM loans available for jumbo mortgages?

Yes. If you are looking to lower monthly payments at the outset, jumbo loans with a three-, five- or seven-year ARM may be available.

What are Fannie Mae and Freddie Mac and why are they significant to my loan?

Fannie Mae and Freddie Mac are U.S. government entities that act as links between local banks, the federal government and Wall Street. Their mission is to provide ready access to funds and reasonable terms. Fannie and Freddie buy most of the home loans in the United States, hold them or package them into mortgage-backed securities that are sold publicly to investors. These mortgage entities help maintain stability, affordability and liquidity within the industry. Most importantly, these they help homeowners secure lower interest rates and origination fees, obtain customizable mortgage programs and access home financing education programs.

Scott Bakay

NMLS: 1177247
Phone: 303-501-6687
Email: scott.bakay@fairwaymc.com

Fairway Independent Mortgage Corporation

8480 E. Orchard Rd #2100
Greenwood Village, Colorado 80111
Phone: 720-500-1871
eFax: 866-526-2397
Fairway Independent Mortgage Corporation (NMLS# 2289)
Complaints may be directed to:
(877) 699-0353 or Email us: customerservice@fairwaymc.com