All You Need to Know About Jumbo Mortgages

By Ciprian Morariu Published: April 4, 2024

All You Need to Know About Jumbo Mortgages

Planning to buy a home anytime soon? Well, if you are ready to make one of the most financially important decisions of your life, then it helps to go with planning and preparation. 

Buying a home is a big financial commitment, especially if you are interested in financing your housing purchase. 

If you are exploring financing options for your dream home, then this article is going to help you plan better. 

For buyers who want to purchase a home, there are a range of mortgage plans and loan options available. 

However, to get the best value for your money, it is important to make an educated decision on choosing the most suitable financing option. 

For those interested in buying a luxury property or a bigger-sized home, the Federal Housing Finance Agency (FHFA) has enforced a specific rule. 

According to this rule, the value of a conforming mortgage for a single-family home in the country is limited to $726000 for most states. 

A Jumbo mortgage is a loan that exceeds the limits as established by the FHFA.   

Let us now check what jumbo loans are, how borrowers qualify for them, the benefits of these loans, and their difference from conventional mortgage loans.  

What Is A Jumbo Mortgage Loan

Primarily, a jumbo mortgage is a loan with limits that exceed what is generally sanctioned for conventional loans and is used to purchase high-end and luxury properties.   

This means if you have the means and resources to purchase a highly valuable and expensive home, then jumbos are meant for your needs.

If you go by definition, any mortgage loan that has limits including and below $650k is a conventional loan. As laid down by the Federal Housing Finance Agency (FHFA), all loans beyond this benchmark are jumbo mortgages.

Further, jumbo mortgages are not necessarily securitized by Fannie Mae or Freddie Mac. 

For further details about jumbo loans, you should contact a mortgage loan originator (MLO) who is ideally placed to advise you about the various jumbo loan products. This is because to get a mortgage loan originator license, an aspiring MLO must go through mortgage loan originator license courses that impart in-depth knowledge about the mortgage industry including jumbo loans. 

This MLO course is online and hence can be studied from anywhere, anytime, and even while on the go.   

Loan Limits for Jumbo Mortgages

Even though jumbo loan mortgage limits typically range between $3 million and $5 million, these are just indicative amounts. Sanctions can exceed these limits based on the borrower’s net worth and repaying capacity.   

The amount of a jumbo loan may vary as per various factors such as – the size of the home, the neighborhood of the property including its geographical location. 

It all depends on the mortgage broker you work with - if your broker specializes in providing jumbo loans for ultra-premium and luxurious properties, you can easily obtain a massive loan. 

In most states, a jumbo mortgage loan is usually around $750K for a single-family home. 

However, in popular property markets such as New York and San Francisco, a jumbo loan amount can go as high as $1,145,000. 

Note that every year the loan limit is set afresh for all the states by the Federal Housing Finance Agency (FHFA).

Explaining the Variance between Conventional and Jumbo Mortgages 

If you go by the definition of a jumbo mortgage, it is any mortgage that exceeds the benchmark limits of conventional loan limits.   

A conforming mortgage, on the other hand, is defined as a conventional mortgage loan that is well within the pre-defined conforming limits as established by the Federal Housing Finance Agency (FHFA). 

Again, while conventional loans need a guarantee from Fannie Mae or Freddy Mac, it is not so for jumbo mortgages. Jumbo mortgages also come with higher interest rates and a larger down payment. 

Overview of Jumbo Mortgage Requirements

So far, we have given a fairly basic understanding of what jumbo loans are and how they are different from conventional mortgage loans.

Next, let us talk in detail about how jumbo mortgages work and how you can prepare to apply for one if you are interested in purchasing an expensive property. 

Let us check out the eligibility requirements to be sanctioned a jumbo mortgage loan.

  • A high credit score of 700. Some lenders require borrowers to have a credit score exceeding 760.   
  • A low debt-to-income ratio (DTI) is a way for the lenders to ensure that the borrower has strong financials and sufficient cash flow to pay their mortgage. 
  • Proof of a high net income and sufficient cash reserves as a marker for an individual’s ability to afford significantly higher down payments over a long time. 
  • A higher down payment in advance to mitigate the risks involved with a jumbo loan. Typically, a borrower has to pay at least 20-30% of the property value as a downpayment.

You simply apply for the mortgage loan amount and opt for the desired mortgage term, which generally is set at 30 years. 

However, it is important to note that due to the larger risk involved in offering a very high loan amount, many lenders have their own set of additional requirements and guidelines for borrowers. 

Jumbo Mortgage Documentation

Let us take a look at the documentation required to secure a jumbo loan: 

  • Proof of income for the last 30 days
  • Two-year statement of tax returns 
  • Two years W2s and 1099s
  • Investment proofs such as mutual funds, current and savings accounts, 401k accounts
  • Credit score, debt-to-income ratio, and payment history

Note that your mortgage broker and lender might require any additional documentation and paperwork to approve a jumbo loan.

Jumbo Mortgage Interest Rates

As of March 2024, the current mortgage interest rates for jumbo loans are around 7%, which is higher than the average rates from the last two years.

In 2020, interest rates hit an all-time low during the pandemic. 

Since 2022, the mortgage interest rates on jumbo mortgage loans have been rising significantly. 

Jumbo Mortgage Down Payments

As a general rule of thumb, most lenders prefer obtaining a hefty percentage of the property’s value as a down payment. This is done to reduce the uncertainty and risk involved in offering a jumbo loan. 

Generally, the down payments can range from 5 to 15 percent on a 30-year jumbo mortgage. 

Benefits of Jumbo Mortgages

Financing Expensive Properties

One of the foremost jumbo mortgage benefits is the ability to buy and finance expensive properties of your choice. 

Buying an ultra-luxury apartment or a king-size villa is a major financial investment, especially if you are choosing a premium, exclusive neighborhood in a popular state. 

Jumbo mortgage loans help people achieve their dream of homeownership by allowing them the flexibility to go beyond the limit of a conventional mortgage established by the Federal Housing Finance Agency (FHFA) and make high-ticket purchases.  

Flexibility in Loan Amounts

Jumbo loans allow you to opt for a higher loan amount and borrow more money in comparison to a conventional mortgage loan. This is ideal for high-net-worth individuals looking to invest in premium and ultra-luxury properties.  

Having the ability to choose a bigger loan amount means you can easily spread your mortgage across a longer duration of your tenure and decide to opt for a fixed-rate mortgage or an adjustable one. 

Lower interest rates compared to other non-conforming loans

As jumbo loans are mainly offered to high net-worth and credible individuals, they also gain the added benefit of lower interest rates. However, jumbo loans are generally sanctioned to high-net-worth individuals with a low debt-to-income ratio. 

High-quality customer service from Jumbo Mortgage lenders

Another important yet often overlooked jumbo mortgage benefit is the higher quality of customer service and support from brokers and lenders. 

Due to the high entry barrier and stringent qualification requirements, individuals eligible for a jumbo mortgage loan are considered more trustworthy and creditworthy in the eyes of financial lenders. 

Therefore, lenders and brokers tend to provide better, more responsive, and personalized service to high-net-worth individuals. 

Yes, lenders also expect more from borrowers who opt for jumbo mortgage loans, but in return, lenders offer a more personalized, robust, and premium service experience.