Qualifying For Jumbo Loans And Types Of Jumbo Mortgages
This BLOG On Qualifying For Jumbo Loans And Types Of Jumbo Mortgages Was Written By Matthew Herbolich MBA JD LLM NMLS 1649154
What Is a Jumbo Loan And Qualifying For Jumbo Loans
Another name for a jumbo mortgage is a non-conforming mortgage.
- This is a loan a lender makes you that doesn’t “conform” to the guidelines of Fannie Mae and Freddie Mac.
- 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.
- Fannie Mae and Freddie Mac only buy mortgages meeting their guidelines for down payment, credit score, post-closing reserves, and loan amount.
- In 2017, the conforming loan size limit for a one-unit home is $424,100 nationwide, but can go higher in certain high-priced markets.
- Loans greater than these limits are usually called jumbo mortgages, but can also be called non-conforming mortgages
Why Are Non-Conforming High Balance Loans Called Jumbo Mortgages
There’s a reason that they are called jumbo mortgages.
- As one can infer, “jumbo” mortgages are loans with larger loan amounts than usual.
- The mortgage amount that qualifies as “jumbo” will vary from county to county, based on local home prices
- In many locations, a jumbo mortgage is anything written for $424,100 or more.
- In other areas, where house prices are traditionally higher, the mortgage has to be at least $636,150.
And in some counties the starting point for jumbo loans will be somewhere between those two numbers — set to correspond with the local home market
Want to find the starting point for jumbos in the neighborhood of your dreams? Check the county on this Federal Housing Finance Authority website.
- What you might not know is that the $424,100 minimum threshold for jumbos can change.
- The FHFA annually reviews the ceiling amount for conforming mortgages and announces the results each November as federally required.
- And if the maximum amount for conforming mortgages were to change, that also would reset the minimum for jumbo mortgages.
Qualifying For Jumbo Loans And When Should I Use a Jumbo Mortgage?
Home buyers use a jumbo mortgage when seeking a home loan amount that’s greater than the conforming loan limit in the area.
- In most of the country, that means home buyers use a jumbo mortgage if your loan amount is greater than $424,100.
- In certain areas that are deemed high cost, the conforming loan limits go above $424,100.
- Mortgage Loan Applicants needs to look up area’s loan limits to know exactly.
- The FHFA site has this information.
- Certain lenders will categorize anything above $424,100 as a jumbo, even if the loan is being made in a high-cost area where the conforming limit goes as high as $635,155.
- But don’t assume this applies for home buyers in an area where the conforming limit goes above $424,100.
- Borrowers need to ask the lender they consult with what kind of loan they are be eligible for.
- A good mortgage broker will keep you informed as to your loan’s status as a jumbo.
Qualifying For Jumbo Loans And Down Payment Requirement
A more expensive house usually means a larger down payment.
- But with a jumbo loan, the lender also might want a larger percentage of the home price as a down payment, according to several lenders.
- So you may have to part with a bigger chunk of cash.
Even so, the industry is seeing an uptick in the availability of loans with down payments in the 5 percent to 10 percent range, says Lynn Fisher, vice president of research and economics for the Mortgage Bankers Association.
- But those lower down payments often come at a price.
- Lenders willing to take a smaller percentage as a down payment often will increase the interest rate accordingly, Navy Federal’s Miller says.
There will be interest-rate bumps associated with the percentage you’re financing, she says.
“Usually, the more you can put down, the better interest rate you’re going to get,” she says.
Qualifying For Jumbo Loans Versus Other Loan Programs
Jumbo mortgages have the same overall qualifying methodology as a conforming loan.
- Lenders will look at credit score, down payment size, total monthly debt obligations relative to income (called your debt-to-income ratio), and money left over after closing.
- Credit score requirements are about the same for conforming and jumbo: a credit score down to 680 generally gets you most available loan options.
- Albeit with a higher rate than borrowers get with a top-tier credit score of 780 or greater.
- As for money left over after loan closing — often called reserves or post-closing liquidity — jumbo loans will be more stringent than conforming.
- Typically jumbo lenders want to see 12 months of reserves after the close, half liquid (in a checking or savings account), and half calculated from retirement assets.
- Conforming loan reserve requirements range from 0 to 12 months, depending on factors such as credit score, down payment, and DTI .
- Jumbo exceptions are available if your debt-to-income ratio is low and your down payment is high.
- However, jumbo loan approvals have some flexibility that conforming loans don’t have:
- Higher debt-to-income ratio. For most conforming loans with 20 percent down or greater, lenders will usually require that your total monthly housing payment plus all other monthly bills doesn’t exceed 43 percent of your income.
- But there can be some flexibility on non-conforming loans.
- For example, borrowers who documented substantial cash reserves left over after the loan closed, you might be able to get a jumbo loan with a debt-to-income ratio higher than 43 percent.
Income Qualification On Jumbo Loans
Flexible income calculations. Jumbo income calculations can be more logical than conforming.
- For example, if you were in the same industry for 15 years and recently started your own business in that industry, a conforming loan would require you to show two years of filed self-employed tax returns.
- A jumbo loan might only require one year of filed returns if you could document that the business was stable or growing.
- Less than 20 percent down with no mortgage insurance. Down payments on jumbo loans can be as little as 10 percent for loan amounts of $1 million and sometimes higher, translating into a $1.1 million purchase price or higher.
- Unlike conforming loans, these low-down jumbo programs don’t always require mortgage insurance.
- The trade off for this flexibility is that most lenders will offer a rate that’s about .25 percent higher and require 30- to 36-percent debt-to-income ratios for these low-down jumbos.
Qualifying For Jumbo Loans And Credit Score Requirements
When you’re borrowing more and the lender is backing the loan, it may want a little more assurance that your credit is worthy, although each lender can have slightly different requirements.
- For the most part, lenders will be looking for a credit score no lower than 680, and some will require at least 700, says Bill Benfield, vice president with Quicken Loans.
- They typically cap the borrower’s debt-to-income ratio at 40 percent to 43 percent, he says.
- Each lender may have specific things it wants to see.
- For example, some lenders may be looking for certain signs of strong credit on your credit report.
- At PNC, jumbo borrowers need at least a 700 FICO score, plus at least three current or former credit cards or loans — called “trade lines” — in their credit history, PNC’s Case says.
- And if a borrower doesn’t have a mortgage, the bank wants to see a year’s worth of rental records to show a pattern of managing household money, he says.
How Do Jumbo Rates Compare to Conforming Rates?
Before the financial crisis of 2008, jumbo loans typically had rates at least .25 percent higher than conforming loans because jumbo lenders were perceived as taking more risk making loans that couldn’t be sold to government-backed Fannie Mae and Freddie Mac.
- This risk translated into higher consumer rates.
- In the years following the financial crisis, federal regulations have impacted rate markets in such a way that has enabled banks to keep jumbo rates about the same as conforming rates.
- This dynamic can change over time, so ask your lender to compare options for you, especially if you’re in a high-cost area where you might be eligible for a conforming loan above $424,100.
Qualifying For Jumbo Loans For Self Employed Borrowers; Bank Statement Loans
The Gustan Cho Team at USA Mortgage offers Jumbo Bank Statement Mortgage Loans for Self Employed Borrowers.
- No tax returns required. 24 months bank statements deposits is used.
- Bank Statement Mortgage Loans For Self Employed Borrowers has no loan limits.
- Requires 20% down payment on home purchase. 24 months bank statement deposits is averaged to derive income.
- Withdrawals do not count.
We also offer NON-QM Loans where there is no waiting period after bankruptcy, foreclosure, deed in lieu of foreclosure, short sale. No loan limits.
About The Author: Matthew Herbolich
Matthew Herbolich MBA JD LLM NMLS 1649154 is the author of Qualifying For Jumbo Loans. Matt Herbolich is a guest writer for Gustan Cho Associates Mortgage & Real Estate Information Resource Center. Matt is also an associate and licensed loan officer of The Gustan Cho Team at USA Mortgage. Armed with two law degrees plus an MBA, Matt is an expert in title issues, real estate investments, and lending. Looking forward to more upcoming real estate and mortgage blogs by Matthew Herbolich.