A jumbo house needs a jumbo mortgage
Got your eye on a bigger, better, more expensive home? You’re likely going to need a bigger mortgage.
That’s where a jumbo loan can come in handy.
Jumbo loans let you buy more than traditional loan limits allow — which is currently $548,250 in most areas.
And thanks to new mortgage programs, you don’t need 20 or 30 percent down to get a jumbo loan anymore.
In fact, some lenders will let you spend upwards of $2 million, with just 5 or 10 percent down and no mortgage insurance.
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What is a jumbo loan?
A jumbo mortgage is a “non-conforming loan,” meaning it surpasses the conforming loan limits set in place by Fannie Mae and Freddie Mac.
Because jumbo loans are considered non-conforming, they don’t have to meet underwriting standards set by Fannie and Freddie. As a result, jumbo loan lenders can set their own requirements for borrowers.
That means minimum credit scores, minimum down payments, maximum debt-to-income ratio (DTI), and other criteria can vary a lot by lender.
Some may require 20 percent down and a 740 credit score, while others may allow down payments starting at 5 percent or FICO scores as low as 680.
In addition, some lenders may require up to a years’ worth of cash reserves to qualify. That means you’d need 12 mortgage payments worth of savings in your bank account after paying the down payment and closing costs.
Home buyers should be careful to shop around for this type of loan.
Loan requirements aren’t the only thing that differs by lender; interest rates and fees can vary by a large amount, too. So find a lender that will approve you for a jumbo loan and a great deal.
How much is the down payment on a jumbo loan?
In the past, jumbo loans typically required 20 percent or even 30 percent down.
Imagine you’re buying a home worth $750,000. A 20 percent down payment would put you at $150,000 out of pocket — and that’s before closing costs are added in.
Today’s homeowners have more options, though.
Jumbo loans are now available from some mortgage lenders with as little as 5 or 10 percent down. Others may require 15 to 20 percent.
It all depends on the mortgage company you work with. As we said before — lenders have free rein to set their own rules for this type of mortgage.
Low-down-payment jumbo loans can be especially helpful for first-time home buyers who live in high-priced markets but haven’t had a lot of time to build up their savings.
How do I get a jumbo loan with 5% down?
Simply by shopping around. Check in with a few different mortgage lenders and ask about their minimum down payment for a jumbo loan.
Ask about credit score and income requirements, too, to see whether you’re likely to qualify.
“You’ll likely have to look beyond your local bank,” says Eric Jeanette, president of Dream Home Financing and FHA Lenders. “There are many online lenders who have creative loan programs that local banks simply do not offer.”
Another way to find a low down payment jumbo loan is to look to wholesale mortgage brokers.
“Wholesale mortgage brokers have relationships with many lenders who can offer flexible terms and guidelines. They can also yield the most cost-effective mortgage solutions for the jumbo loan market,” says David Yi, president at Providence Mortgage.
When you find a lender offering low-down-payment jumbo loans, you can fill out a pre-approval application to verify your eligibility.
Then, once you have a signed purchase agreement on the home, your lender will be able to issue a final loan approval confirming the interest rate, loan terms, and closing costs on your new jumbo loan.
One thing to note: most lenders are not very forthcoming with information about their jumbo loans online. So don’t expect to find everything you need on a lender’s website.
Instead, get in touch directly with a loan officer or mortgage broker who can fill you in on the details.
What’s considered a jumbo loan in 2021?
Lysa Catlin is a senior loan consultant for Caliber Home Loans, Inc. She says the Federal Housing Finance Agency (FHFA) announces new conforming loan limits each year, which dictate the threshold for a conforming loan vs. a jumbo loan.
“The conforming limit is now $548,250. Anything above that amount is considered a jumbo mortgage,” Catlin explains.
Note that there are some high-cost areas where conforming loan limits are a little more generous.
In some real estate markets, the limit for a single-family home goes as high as $822,375.
- Most markets: Loan amounts greater than $548,250 are considered jumbo loans
- High-cost markets: Loan amounts greater than $822,375 are considered jumbo loans
Keep in mind that the upper limit for conforming loans is the lower limit for jumbo loans.
But jumbo mortgages also have caps, which can vary by lender.
Some mortgage companies will go up to $2 or $3 million on a jumbo loan. Others will lend as much as $10 to $15 million and beyond.
Of course, you have to be able to afford the monthly mortgage payments on a multi-million-dollar loan to qualify. And that’s why lenders have such strict underwriting criteria for jumbo loans.
Do jumbo loans require mortgage insurance?
Making a down payment of less than 20 percent normally means you have to pay for private mortgage insurance (PMI). That’s true for most jumbo loans as well as conforming mortgages.
“PMI is an insurance policy that protects the lender from losses in the event that you can’t pay your debt or file for bankruptcy. PMI exists for loans with a loan-to-value greater than 80% due to the increased risk,” says Jeanette
PMI can be pretty expensive — especially for jumbo loans.
“For example, the monthly PMI payment on a $2 million jumbo loan at a 90% loan-to-value ratio and a credit score in the mid-600s would be $1,083,” Jeanette adds.
But 20 percent down isn’t always required. In fact, some lenders today are offering special jumbo loan products that require a much smaller down payment and no PMI attached.
Caliber Home Loans is one such lender.
“We offer jumbo mortgages up to $2 million with only 5% down payment required and no PMI. We also offer a jumbo loan up to $3 million with 10% down needed and no PMI,” says Catlin.
Be aware, you’ll likely pay a higher interest rate if you’re not paying for PMI.
“Since you’re putting less than 20% down and not paying mortgage insurance, rates could be higher. That’s because your profile poses more risk due to less collateral,” explains Yi.
Jumbo loan rates today
You might think jumbo loan rates would be much higher than conforming mortgage rates. But in fact, they’re often similarly priced.
Today’s mortgage rates for a jumbo home purchase or refinance are low, just like all interest rates.
Keep in mind that jumbo loan rates, like all mortgage rates, depend on many factors. “These include loan type, loan amount, down payment, credit score, debt-to-income ratio, and reserves left after closing,” Catlin says.
In general, Jeanette advises that jumbo mortgage rates are roughly a half percent higher than conventional rates.
“That’s true if the borrower has good credit and can fully document his or her income,” he explains.
“But when you start to add in other factors, like poor credit, alternative income documentation, and bankruptcies, the rates will be higher.”
Jumbo loan options include a fixed-rate mortgage or adjustable-rate mortgage.
An adjustable rate may help you save money on your mortgage payments initially, but it could be very risky to have an increasing jumbo loan rate and payment later on. So these loans generally aren’t recommended unless you plan to refinance or move before the initial fixed-rate period ends.
Jumbo loan refinancing
If rates fall after you take out a jumbo loan, you may be able to refinance into a lower interest rate and monthly payment. Qualifying for a jumbo loan refinance can be tricky, though.
Just like home buying with a jumbo loan, there will be stricter scrutiny on your credit, income, and financial history. And there may be limits on cash-out refinancing.
But if you qualified for a jumbo home purchase, there’s a good chance you’ll be eligible to refinance. Check with a few lenders to find the best loan option and interest rate for you.
Good candidates for a jumbo loan
If your new home’s purchase price exceeds conforming loan limit in your area, a jumbo loan may be your best option.
Just keep in mind that to qualify and afford the monthly payments on a jumbo loan, you’ll need a healthy income. That’s true even if you’re not making a big down payment.
“We only recommend people take out mortgages they are comfortable making the [monthly payment] on,” says Catlin.
“We often see people put less money down initially and then pay the mortgage balance down in chunks later. That can be especially smart when they have a home to sell, expect stock to vest, or will be inheriting money.”
Also, says Jeanette, “say interest rates are low and you can invest the down payment money in something else that will earn a higher rate of return. In this case, pursuing a low down payment jumbo loan can make sense.”
Your next steps
If you have your sights set on a big house with all modern amenities, you might need a jumbo loan to finance it.
And if you live in an expensive area — think NYC, L.A., or Seattle — you might need a jumbo loan regardless of home size.
The good news is, it’s easier to get a jumbo loan now than it has been since the mortgage crisis. You might be able to buy a home worth half a million or more with just 5% down and no mortgage insurance.
Ready to get started? Explore your loan options today.