If you’re looking to upgrade your home this year and the cost of your new property is too high for a conventional mortgage loan, consider taking out a jumbo loan. Your dream home can still be a reality with this special type of home loan, so keep reading to find out what a jumbo mortgage loan is and how you can get one.
What is a Jumbo Loan?
Also known as non-conforming mortgages, jumbo loans are home loans that are used to finance the purchase of a home when the amount being borrowed exceeds the limits of a conventional mortgage.
The amount that you can borrow on a normal mortgage varies from state to state and this limit is set by the Federal Housing Finance Agency (FHFA). For 2024, the maximum loan amount is $766,550 on a conventional mortgage.
At CS Bank, we offer jumbo loans to homebuyers in Northwest Arkansas and Southwest Missouri who need more than $417,000 in loan funding to buy or refinance their primary or secondary residence.
Jumbo loans work in the same way as other mortgages and are simply for a larger amount of money. You should be able to get a fixed rate and terms up to 30 years like a traditional mortgage.
Why Would You Need to Get a Jumbo Loan?
If you’re trying to purchase a home or refinance your existing mortgage for a larger amount than the conforming limits, you’ll need to get a jumbo loan. However, if you’re also putting down a significant down payment that lowers your overall lending amount to below the conforming amount, you may not need a jumbo loan and could take a conventional home loan.
Some people choose to use jumbo loans to buy multifamily rental properties, but it’s important to remember that there may be other, more conventional loans that suit this situation better. This type of purchase may qualify for a commercial real estate loan or agricultural real estate loan, so a jumbo loan wouldn’t be needed.
But if you’re looking to purchase a home in a more expensive area like Bentonville or Holiday Island, or you’re refinancing your mortgage on your current property, a jumbo loan may be more suitable for your needs.
What Makes a Jumbo Loan Different Than Conforming Mortgage Loans?
While there are many similarities between jumbo loans and conventional loans, there are some important differences that you should be aware of.
You’ll need to provide a larger downpayment than many conventional mortgages, with most jumbo loans requiring at least 20% of the purchase cost in downpayment.
Many jumbo loans also have higher interest rates than a traditional mortgage since the risks are higher for the lender. On average, you’ll probably be looking at around 0.25% to 1% higher than a conforming mortgage.
Since these loans also require extra steps for the lender to confirm your qualification status, and many of the closing costs and fees are a percentage of the loan amount, you’ll likely also have higher final costs when taking out a mortgage of this size.
Jumbo loans are also typically long-term loans with a fixed interest rate. It’s unusual to find shorter term lengths on loans this large.
How to Qualify For a Jumbo Loan
As these loans are riskier for the lender due to the large amount of money being borrowed, strict documentation is often required to meet the qualifications for taking out a jumbo loan. This can make jumbo loans much harder to get approval for, so factor in the time that this will take when looking for and deciding on a new home.
To qualify for a jumbo loan, you’ll need:
- A high credit score. Loans up to $1 million will need a credit score of 700 or more, while loans up to $2 million need a credit score of at least 740.
- A good debt-to-income ratio (DTI). This ratio looks at the monthly payments you’re making to existing debts and divided by your total monthly pre-tax income. For instance, if your monthly debt payments are $700 and your gross income is $5,000, your DTI is 14%. For any mortgage, you’ll need to keep this under 43% but for a jumbo loan, 36% or lower is best.
- Cash reserves. Along with your down payment, you may need to show proof of cash in the bank that covers at least one year of mortgage payments should your loan be approved.
- An additional appraisal. While you’ll need an appraisal for any type of mortgage, a jumbo loan provider may request you get more than one appraisal to ensure that the home you’re buying is worth more than the amount of your loan.
- A loan to value ratio (LTV) under 80%. Your LTV ratio is the percentage of your loan compared to the appraised value of the property. Most conventional loans need a 97% ratio or under 80% to avoid private mortgage insurance. But for jumbo loans, you’re likely looking at an LTV of 80% or lower to be approved.
Jumbo Loans for Veterans and Military Personnel
For qualifying veterans or current service members, the Department of Veteran Affairs (VA) offers jumbo loans, where the bank assumes the risk. In some cases, you may be able to qualify for a no down payment jumbo loan as a current or former service member.
To benefit from no down payment, you’ll need a median FICO score of 640 or higher for loans up to $1.5 million. You should also aim to have cash reserves to prove that you’re able to make your monthly loan payments.
VA jumbo loans will also require approval from the VA on the property itself. For conventional loans, this is usually not the case. But with VA jumbo loans, you’ll likely need to make this home your primary residence.
How to Apply For a Jumbo Loan
Not every lender offers jumbo loans, but as a full service mortgage lender, CS Bank provides jumbo loan options throughout Northwest Arkansas and Southwest Missouri. To apply for a jumbo loan, you can start the application process online or visit one of our convenient locations with your documentation.
Talk to a mortgage lender at CS Bank today to learn more about our jumbo loans, the qualification requirements, and the process of applying for one of these home loans.