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A Jumbo Mortgage is typically needed when is a home loan exceeds the “conforming limits” put in place by Freddie Mac and Fannie Mae sometimes referred to as “the agencies”. The conforming limit is higher in counties with higher home prices, so check here to see the most recent limits by county in California or contact us and we can talk you through limits and much more!
Since the Jumbo Loan amounts exceed the “conforming limits” – these non-conforming loans are viewed to be riskier – jumbo lenders usually have stricter requirements. As a result, often jumbo mortgage approval requires the borrower(s) to have more income, higher credit scores and greater reserves (ex: assets like savings).
Borrowers should be prepared to prove reserves that can cover between six and 12 months’ worth of mortgage payments. The typical down payment on jumbo loans range between 10 and 20 percent. Any lower, and the interest rate will likely go up.
Jumbo loans can be a convenient way to finance property, but it’s also possible to get two conforming loans (this is often called a 80-10-10* loan or a piggyback loan) to finance a home that would otherwise require a single Jumbo Loan…thus getting around the stricter Jumbo requirements. The common case here, is borrowers who qualify for a large loan amount in based on income and credit, BUT lack the larger down payment amount for jumbo loans.
*the 80-10-10 refers to the initial loan being 80% of the home’s value, the piggyback loan being 10%, and then the downpayment making up the final 10%. However there can be variations like a 80-15-5 or 75-15-10
Also important is the loan-to-value (LTV) ratio. This is the amount of the loan relative to the value of the home. Depending on the lender, Jumbo Loans will have a maximum loan-to-value ratio…and furthermore, this ratio influences your interest rate. Again, navigating this criteria is best to do with an expert.
Hope this info helps and don’t forget, we’re here if you have any more questions.
PS Check out our simple eval process where you can choose whether you want to: get real rates specific for your scenario (beware of teaser rates!), see how much home you can afford, get pre-approved, or quickly submit your contact info so we can get back in touch.