As of 2024, the jumbo loan threshold in most of the United States is $453,100, though in high cost areas it can go as high as $679,650.
Is a Jumbo Mortgage Loan Right For You?
If your dream house has a high price tag, you’re probably already considering taking out a jumbo mortgage loan. However, taking out a jumbo loan is easier said than done. As a borrower, you need to figure out if you not only meet the requirements for a jumbo mortgage loan but whether you will continue to meet them. Do you have a stable job with a large enough income that you’ll be able to make the significant down payment and then regular monthly payments for up to 30 years? And is the house in question worth it? While a bank or private lending institution can tell you if you fit the requirements for taking out a jumbo loan, only you can answer as to the impact it will have on your financial and personal life
How to Qualify for a Jumbo Mortgage?
The exact requirements of a jumbo loan will be underwritten by each individual lender, as opposed to conforming loans like Fannie Mae and Freddie Mac, which are underwritten by the Federal Housing Finance Agency. Lenders have the freedom to underwrite their own jumbo loans because when dealing with such large amounts, they need to take extra precautions to make sure they get paid back.
Because you’re dealing with amounts above the conforming loan limits, you need to fulfill very strict requirements:
- Usually 2 appraisals instead of 1
- Higher down payment (15%, 20%, 30%, depending on lender)
- Credit score of 700 or higher
- A debt-to-income ratio of 43% or less
- 6-12 months reserves in your bank account
- Proof of income: Dig back for at least 2 years’ worth of tax documentation, liquid assets, and similar paperwork to prove that you’re earning enough to cover your monthly payments
The Pros and Cons to Consider
| Pros | Cons |
|---|---|
| Ability to purchase an expensive home | Difficult approval process |
| Similar interest rate as conforming loans | Large repayment amount |
| Many lenders don't require purchase of PMI with a down payment of less than 20% |
Jumbo Loan vs Conventional Loan
While conventional or conforming loans like Fannie Mae or Freddie Mac follow guidelines specified by the the Federal Housing Finance Agency, the requirements for jumbo loans are set by each individual lending institution since it is taking on more risk. Because the loan amount is higher, the requirements are stricter and it’s not as easy to get approved. Lenders will want to see the following:
- Proof of income:
Lenders will want to see that you have enough liquid assets on hand to cover six months' worth of mortgage payments or more, as well as two years' worth of tax documents proving that you have a stable source of income.
- Good credit history:
Lenders will only supply jumbo loans to borrowers with credit scores of at least 620, however, it can be difficult to qualify for a loan with good terms if your credit score falls below 700.
- Debt-to-income-ratio (DTI):
Conventional mortgage lenders typically require 43% or less DTI in order to qualify for a loan. Jumbo mortgages often require a lower DTI because of the size of the loan.
- Down payments:
Traditionally, jumbo mortgages required higher than standard down payments, 30% or more. The ratio has shifted slightly, with some jumbo mortgages requiring down payments as low as 10-15%.
Every lender has its own unique criteria for jumbo loans, so every program is different. Find a lender that fits your financial situation and qualifications.
Your Jumbo Mortgage Payments Include:
- Interest rates: The interest rates of a jumbo loan versus a conforming loan are fairly similar; in some cases, they can be slightly higher, but in others, they can be slightly lower. As with any loan, the interest rate on your jumbo loan will depend on many factors:
- Size of your down payment
- Credit score
- Income
- Cosigner
- How much money you have in the bank
- Closing costs: In addition to the price of the house you want to buy, there are additional costs, that can include origination, appraisal, application fees, and anything else included in buying a property. Because jumbo loans involve significantly more paperwork than typical loans, the closing costs tend to add 2%-5% of the loan onto your total cost.
- Private Mortgage Insurance (PMI): When you take out a conforming loan, you’re required to purchase PMI if your down payment is less than 20%. However, when you take out a jumbo loan and you put down less than 20%, you will not necessarily need to purchase PMI, which can significantly cut down on your monthly payment amount
Bottom Line
Taking out a jumbo mortgage loan to purchase a house is a good option for people with money in the bank, steady, large incomes, and good credit. Because jumbo loans are so big, you’ll find that each lender has its own qualifying requirements, as opposed to conforming loans, which follow guidelines set down by the Federal Housing Finance Agency. While qualifying for a jumbo loan involves a lot of paperwork and is not necessarily easy, if you do qualify, it’s a great way to finance the house of your dreams