Mortgage 101

What Is a Jumbo Loan?

Published on: April 18, 2022

jumbo loan

A jumbo loan is a mortgage for homes that exceed conventional conforming loan limits. For 2022, the conforming loan limit is $647,200 in most parts of the U.S., while borrowers in high-cost areas can get conforming loans up to $970,800. These limits are set by the Federal Housing Finance Agency (FHFA).   

Because jumbo loans come with larger loan amounts, lenders assume more risk if a borrower fails to repay their mortgage. As a result, jumbo borrowers face stricter qualification requirements. 

How do jumbo loans work?

A jumbo loan is also referred to as a non-conforming loan because it doesn’t adhere to the guidelines set by FHFA. As a result, a jumbo loan isn’t eligible for the benefits of conforming loans, such as lower down payment requirements. 

Conforming vs. Jumbo Loan Limits 
  Conforming  Jumbo 
Loan limit  Between $647,200 and $970,800 (varies by county)  Potentially unlimited; varies by lender 
Limit determination   The price of homes in your area  Based on factors such as credit score, down payment, and debt-to-income ratio 

How do jumbo loans compare to conforming mortgage loans?

A jumbo loan shares many common characteristics with a conforming loan. For example, both types of loans require you to go through the traditional mortgage process. However, a jumbo loan usually has more stringent underwriting guidelines, such as higher minimum credit scores and down payment amounts, lower debt-to-income ratios, and higher cash reserve requirements.

Jumbo loan interest rates 

Similar to conforming loans, interest rates on a jumbo loan depend on a variety of factors, such as your credit score, loan amount, mortgage type, and your debt-to-income (DTI) ratio, which measures how much of your gross monthly income goes toward paying monthly debts, including your new mortgage. That said, interest rates on jumbo loans may be higher than conforming loan rates. 

Jumbo loan minimum down payment 

The minimum down payment for a jumbo loan is usually higher than it is for a conventional conforming loan. While a lender may require a minimum down payment of 3% or more on a conventional conforming loan, jumbo borrowers may have to put down 10% to 20%. Again, this amount will vary by lender. 

Jumbo loan minimum credit score 

To ensure you repay such a large loan amount back, lenders usually require a higher minimum credit score to qualify for a jumbo loan. Although it may vary by lender, you’ll need a minimum score of 660 to 700 or higher for a jumbo loan in many cases. 

By contrast, minimum credit scores for conforming loans and government-backed loans are typically much lower to give more people access to homeownership. 

Debt-to-income ratio 

When you apply for a conforming mortgage, lenders typically require a debt-to-income (DTI) ratio that’s 45% or less. Some lenders, however, have higher DTI ratio maximums — up to 50%. This ratio helps a lender assess your ability to repay your mortgage and other monthly debts and is calculated by dividing your gross monthly income by your monthly debts to get your total DTI ratio. The higher your DTI ratio, the more you may struggle to repay your mortgage if a job loss or other event impacts your income.

Since a jumbo loan is riskier for lenders, you may need a DTI ratio that’s lower than the standard percentage to offset the higher risk.

Property types 

A jumbo loan is similar to a conforming loan in that you can use it to purchase a primary residence, investment property, or vacation home.

At a glance: conventional loans vs. jumbo loans

Conventional Loan Requirements vs. Jumbo Loan Requirements 
  Conventional loans  Jumbo loans 
Minimum down payment  3%  10% to 20% 
Minimum credit score  620 or higher  660 or higher 
Debt-to-income ratio  43% or less  45% or less, but up to 50% for some loan programs 
Property types  Primary residence, investment, or vacation  Primary residence, investment, or vacation 

What are the jumbo loan limits in my area?

Each lender sets its own maximum loan amount for jumbo loans. To determine whether a home might qualify for a jumbo loan, use the conforming loan limits map on the FHFA’s website to look up your county’s loan limit. 

If the home you want to buy exceeds conforming loan limits, taking out a jumbo loan may be your best option. Before you take out a jumbo loan, though, shop around for a jumbo mortgage and evaluate the costs to determine whether you can afford it. You’ll need to consider the larger monthly payments of a more expensive home and the much-higher closing costs and down payment amount that accompany a larger loan amount.

Use a home affordability calculator to help you determine if you can afford the higher monthly mortgage payments. 

Jumbo loan FAQs

Can I deduct the mortgage interest on my jumbo loan? 

You may be able to deduct some of the interest you pay on your jumbo loan; the amount depends on how much your principal balance is. For example, single and married (filing jointly) tax filers were able to deduct interest paid on the first $750,000 of their principal mortgage balance for the 2021 tax year. Meanwhile, married couples filing separately could deduct mortgage interest paid on the first $375,000. 

How do closing costs on jumbo loans compare? 

If you take out a jumbo loan, be prepared to pay more in closing costs since the loan amount is higher than conforming and most government-backed loans. Typically, you’ll pay 2% to 5% of the home’s purchase price for closing costs. That means, if your home’s price tag is $550,000, your closing costs might add up to between $11,000 and $27,500. 

Can I get a jumbo interest-only mortgage? 

Yes. Some lenders offer an interest-only option for jumbo loans. With this option, you’ll pay interest only for a specified time set by the lender. Once that time period expires, you’ll be responsible for repaying the principal amount and the interest, which means your monthly payments will go up considerably. 

Are jumbo loans harder to get than conforming loans? 

Since jumbo loans usually have stricter underwriting requirements, you might find it more difficult to qualify for one versus a conforming loan. 

What are the requirements for VA jumbo loans?  

The U.S. Department of Veterans Affairs (VA) guarantees loans for military borrowers. To be eligible for a VA jumbo loan, you need to qualify for a Certificate of Eligibility (COE), live in the home as your primary residence, and meet the lender’s minimum income and credit score requirements.

Would like to learn more about jumbo loans? Contact a Finance of America Mortgage Advisor today to explore your options.

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