Jumbo Loans

A jumbo loan, or jumbo mortgage, is a mortgage loan that exceeds the limits set by the Federal Housing Finance Agency (FHFA). Jumbo loans are called non-conforming because they don’t conform to these limits.

Since jumbo mortgages don’t have the guarantees that come with conforming loans, borrowers tend to be subject to greater scrutiny and may have higher borrowing costs. A jumbo loan may attract different investors than those who customarily buy conventional mortgage bonds.

Here’s how the mortgage industry works: Mortgages are originated by lenders, who immediately sell them to mortgage investors like Fannie Mae or Freddie Mac. However, Fannie and Freddie are only authorized to purchase mortgages that conform to the FHFA’s limits.

After buying these mortgages, Fannie and Freddie bundle them together with other, similar loans for sale to investors on the secondary mortgage market. A similar process often happens with jumbo mortgages, but different investors are involved.

Like conventional mortgages, jumbo loans come in a variety of terms and repayment schedules, and they can be fixed or adjustable. 

However, jumbo loans work differently than conventional loans. These loans have stricter requirements than other types of mortgages, and you’ll have to meet very specific property type, down payment, credit score and debt-to-income ratio requirements to get one.

Property Types

You can buy various types of properties with a jumbo loan because the government doesn’t restrict how you can use your jumbo loan. As long as you meet your lender’s other requirements, you can use most jumbo mortgages for primary residences, vacation homes and investment properties.

 
Down Payment

Jumbo loans typically have much higher down payment requirements than conforming loans. It’s common to see lenders require 20% down on jumbo loans for single-family units. You may also need a higher down payment for second homes and multi family. Finally, the down payment required is based on your loan amount and credit score as well.

 
With UWM ( preferred lender) , you’ll need a 10.01% down payment for a single-family property up to $2 million. To purchase a two-family property, or duplex, you’ll need a 15% down payment.

Credit Score

Your credit score– a numerical rating of how reliable you are as a borrower – is a major factor when seeking a jumbo mortgage. Your credit score is a numerical rating of how reliable you are as a borrower. Your score can range from 300 – 850, and it’s based on several factors.

 
The exact credit score you’ll need to qualify for a jumbo mortgage will depend on the lender and the loan terms. With a Jumbo Smart loan, the minimum requirement for a 30-year fixed on primary residences, vacation homes and investment properties is a 680 median FICOⓇ Score, though this can vary up to 760 depending on the property type and what you’re looking to do in your mortgage transaction.

The minimum credit score for a 15-year fixed loan or a Jumbo Smart ARM is 700.

Debt-To-Income Ratio (DTI)

Your debt to income compares how much money you earn versus the amount of your debt. To find your DTI ratio, divide all of your required monthly debt payments by the amount you earn before taxes. You'll need a DTI of 45% or lower.

Fannie and Freddie set limits – called conforming loan limits – on how high your mortgage can be. Conforming loan limits vary by state and market. In 2022, you can only borrow up to $647,200 for a single-family unit in most parts of the U.S.

However, conforming loan limits go as high as $970,800 in Major Metropolitan cities, where the median price of a home is far above the national average. In other high-cost areas, loan limits are set on a county-by-county basis.

If you want to own a home in one of the most expensive housing markets in the U.S., you’ll probably need a jumbo loan. Don’t worry, though – you’re not alone. With the currently sizzling housing market, many people are finding that even modest homes require a jumbo mortgage in some areas.

 
Because of this demand, lenders are becoming more comfortable offering jumbo mortgages. Snohomish Mortgage offers the Jumbo Smart Loan, which is available with 15-year or 30-year fixed interest rates or a 7-year adjustable-rate. The 7-year period of the adjustable rate mortgage (ARM) refers to how long the rate stays fixed at the beginning of the loan period, though all ARMs come with 30-year repayment terms. After the first 7 years, the jumbo ARM will adjust every 6 months.

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