Jumbo Loans - How It Works

Jumbo loans are a type of mortgage loan that is designed for borrowers who need a larger loan amount than what is typically available from a conventional lender. These loans can be used to finance a primary residence, second home, or investment property. Jumbo loans usually have higher interest rates and down payment requirements than conventional mortgages.

If you're considering a jumbo loan, it's important to understand how they work and what the requirements are. Here's everything you need to know about jumbo loans:

What is a jumbo loan?

A jumbo loan is a mortgage loan that exceeds the conforming loan limits set by the Federal Housing Finance Agency (FHFA). In most areas of the country, the conforming loan limit is $484,350. However, in high-cost areas like San Francisco and New York City, the limit is higher, at $726,525.

Jumbo loans are available in both fixed-rate and adjustable-rate mortgage (ARM) formats. They can have a shorter or longer loan term than a conventional loan, depending on the borrower's needs.

What are the requirements for a jumbo loan?

The requirements for jumbo loans vary from lender to lender, but typically they include:

 A higher credit score: Borrowers who want to qualify for a jumbo loan will need a higher credit score than those who qualify for a conventional mortgage. Generally, you'll need a credit score of 700 or higher to qualify for a jumbo loan.

A larger down payment: Jumbo loans typically require a down payment of 20% or more. Some lenders may require a down payment of 30% or more.

Proof of income and assets: Lenders will want to see proof of your income and assets in order to approve you for a jumbo loan. This includes tax returns, pay stubs, bank statements, and investment account statements.

How much can you borrow with a jumbo loan?

The amount you can borrow with a jumbo loan depends on the lender's guidelines. Some lenders may only allow you to borrow up to $1 million, while others may go as high as $5 million or more.

What are the interest rates for jumbo loans?

Interest rates for jumbo loans are typically higher than rates for conventional mortgages. This is because jumbo loans are seen as being riskier for lenders. The average interest rate for a 30-year fixed-rate jumbo loan was 4.21% as of January 2019, according to Bankrate.com.

Is a jumbo loan right for you?

A jumbo loan may be a good option if you're looking to buy a high-priced home and you have the income and credit score to qualify for one. But remember that these loans come with higher interest rates and down payment requirements, so make sure you're prepared before you apply.

Although jumbo loans is higher in worth but alongside these are more uncertain about creditors, because in case of defaults it's harder to recover the loan amount. So jumbo loans are a big amount of loan taken for buying expensive homes which is more than the value set by FHFA. The credit score required for jumbo loans is high and also the down payment demanded is also significantly high. 

You should have a proof of income and assets ready when applying for jumbo loans because the lender will need to see it. The maximum amount that can be borrowed through jumbo loans depends on the lender but it's usually around $1 million to $5 million. The interest rates on jumbo loans are higher than conventional mortgages because they're seen as being riskier. Last thing to remember is that jumbo loans come with higher interest rates and down payments so make sure you're prepared before you apply for one.