If you’re doing a little bit of research on jumbo loans here are some important facts you need to know and what to expect.
A jumbo loan is where the loan amount exceeds current conforming loan limits from a typical conventional, FHA, or VA loans. Conforming loans are those that conform to the standards issued by Fannie Mae and Freddie Mac. Jumbo loans are often common in higher cost areas where home values are much greater compared to the rest of the country. For higher-priced areas, the conforming limit can be as high as $726,525 (for 2019) but beyond that, the homeowner or borrower will need to look into a jumbo loan.
Jumbo loans are issued in the same way as other types of loans but they are more difficult to qualify for. Conforming loans can drop as little as 3.5% for FHA loans but with a down payment of anything less than 20%, the borrower will usually have to incur private mortgage insurance, which can add anywhere from $25-$150 per month on to the payment. With jumbo loans, there is no private mortgage insurance, which means that the loan amount for a jumbo loan should be no greater than 80% of the sales price. This, of course, is a 20% down payment and the higher the down payment the better the terms.
Credit score minimums are also higher for most jumbo loans. Conforming loans can approve loans with a credit score of 600 but most jumbo loans ask for a credit score minimum of 700 and of course, as with the down payment, the higher the credit score the better the terms.
Jumbo loans also require a bit more documentation from the borrower as well as third parties. Jumbo loans may need to appraisals and the lender will usually go with the lower value for approval purposes. Most jumbo loans cannot be used for stated income or self-employment loans that cannot be verified by third parties. This means that the borrower cannot simply go on their stated income or bank statement loans for jumbo mortgages.
Jumbo loans also require the buyer to have sufficient cash to close for the down payment, closing costs, and any cash reserves. However, jumbo loan lenders can also set their own guidelines and they don’t have to conform to typical standard lending rules, which means that if one lender denies you, you may be able to go through another. It’s important to shop around and get the best option regardless of the type of loan but once you have provided all the documentation, a jumbo loan application will usually be processed like any other.