While homes come in different shapes, styles, and sizes, most mortgage products work similarly. There are a variety of conventional as well as other government-backed loan products that vary slightly in their underwriting and documentation requirements. However, the documentation required and financial standards may change more significantly if you need a jumbo loan. A jumbo loan product is a mortgage greater than the limit regulated by the Office of Federal Housing Enterprise Oversight, which is set each year. In 2019 the limit in most states was $484,350. So, the dollar amount and name are different than a conventional mortgage, how else does a jumbo loan differ?
Qualifying Requirements for a Jumbo Loan
With a higher loan balance and without government backing (like Fannie Mae, Freddie Mac, or Ginnie Mae) jumbo mortgage investors typically have more stringent financial qualification requirements. Depending on the loan product, some conventional mortgages only require a 580 credit score, while a jumbo loan applicant may need a minimum of a 720 or higher.
A down payment for a jumbo loan is another typical requirement. Again, conventional loan products as well as certain government products are typically flexible with their down payment minimums if one is required. A jumbo mortgage typically requires at least a 20% down payment. Luxury homes and other high-priced properties’ values may fluctuate over the life of the loan. A significant down payment limits the exposure that the investor faces when financing these expensive homes.
Your debt-to-income ratio is another standard component of a mortgage application, and another example where jumbo loan investors are typically more stringent. Typically, your DTI (debt to income ratio) limit will need to be 43 to 45 percent. A lower DTI ratio is more advantageous for your approval as well as your interest rate.
Lastly, one of the unique attributes of a jumbo loan is the requirement of having cash reserves. An investor may require you to have 6 to 12 months of mortgage payments. Typically, at least half of that amount needs to be liquid.
If you are shopping for a home with a price tag higher than the limit on conforming loans, a jumbo loan may be your best option. Entrusting your home buying process to a knowledgeable, experienced loan officer is also essential. The experts at Standard Mortgage (NMLS#: 44912) are here to help and have been for over 90 years.