If life has treated you pretty well and/or you’re looking for a home in an expensive part of the country, you may discover that the amount you’ll need to borrow to purchase a home puts your mortgage in jumbo mortgage loan territory.
What is a Jumbo Mortgage?
For mortgage lenders, a jumbo mortgage is any mortgage in an amount that exceeds the limits set by the Federal Housing Finance Agency (FHFA) for conforming loans. The current limit for a conforming mortgage on a single-family home in most parts of the country is $453,100. A mortgage in any amount higher than that would be considered a non-conforming, jumbo loan.
(The FHFA sets the limit higher in areas with especially high housing costs. The limit is higher in Alaska, Hawaii, Guam, and the U.S. Virgin Islands. In the continental U.S., the ceiling varies from county to county. For example, a mortgage on a single family home in Monmouth County, New Jersey, can go up to $679,650 and still conform to FHFA guidelines. The FHFA has a handy map if you want to check the limits in your area.)
Why is Conforming to FHFA Guidelines a Big Deal for Lenders?
Loans which conform to FHFA guidelines can be sold to Fannie Mae or Freddie Mac. Selling your mortgage to Fannie Mae or Freddie Mac means your lender wouldn’t need to wait around for thirty years collecting your mortgage payments to see a return on the money they lent you to purchase a home.
In short, conforming loans represent less risk to lenders than non-conforming loans. But that doesn’t mean lenders don’t loan people large sums to buy homes.
How are Jumbo Loans Different?
In most respects, qualifying for a jumbo mortgage is very similar to qualifying for any other mortgage. Lenders will still evaluate you as a borrower based on your credit score, income, assets, and debts. Still, there are a few important differences when it comes to qualifying for a jumbo loan.
Mortgage Insurance is not an option – With mortgage insurance, it’s possible to buy a home with a down payment in the single-digits. But there’s no such thing as mortgage insurance for jumbo loans. If you’re borrowing more than the FHFA limits, you’ll need to be able to cover a significant down payment. Most lenders will want to see at least 20% down as well as additional cash reserves.
Rates are often higher for jumbo loans – Because a non-conforming loan represents a bigger risk to your lender, you can expect to see at least slightly higher interest rates for jumbo loans than you might see for a smaller, conforming loan. That said, if you are a very well-qualified borrower, the difference may not be much.
How Would I Qualify for a Jumbo Loan?
Lenders essentially make their own rules for jumbo mortgages, so requirements can vary wildly. For jumbo loan borrowers, this is the most important thing to keep in mind: each lender will have different in-house guidelines for underwriting jumbo mortgages. Conforming loans have strict, government-mandated rules about things like allowable debt-to-income ratios, credit scores, and minimum down payments. But since Fannie Mae and Freddie Mac don’t buy jumbo loans, the FHFA rulebook doesn’t apply.
For jumbo mortgage borrowers, qualifying for a jumbo loan could mean being required to show significant cash reserves. You might be asked to demonstrate a higher income in proportion to the proposed mortgage debt than a conventional borrower. Lenders might ask for more than one appraisal for the property’s value.
Keep in mind, qualifying for a jumbo mortgage is not all extra hoops to jump through: for jumbo loans, lenders may be willing to allow some common-sense accommodations that they aren’t able to offer borrowers whose loans need to conform to FHFA guidelines.
Let’s say you just started a new job because you sold your previous company for eight-figures. Conforming loan guidelines usually require borrowers to show that they’ve kept the same employment—or at the very least, the same type of employment—for at least a year to be eligible for a mortgage. But with significant enough assets in the bank, a jumbo mortgage lender might not feel the need to worry about your employment history at all.
Does Morty Work with Jumbo Mortgage Borrowers?
You bet. Comparison shopping for your mortgage is especially important for jumbo borrowers. Because lenders’ requirements for jumbo mortgages are so idiosyncratic, our automated shop-and-compare results might not show the full range of potential mortgage options to borrowers looking for a jumbo loan. No worries, though: if you’re looking for a jumbo mortgage, we’re happy to help you find the right lender. You can get started here.