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Jumbo

A jumbo loan is a mortgage used to finance properties that are too expensive for a conventional conforming loan. The maximum amount for a conforming loan is $548,250 in most counties, as determined by the Federal Housing Finance Agency (FHFA).

Homes that exceed the local conforming loan limit require a jumbo loan.

Also called non-conforming conventional mortgages, jumbo loans are considered riskier for lenders because these loans can’t be guaranteed by Fannie and Freddie, meaning the lender is not protected from losses if a borrower default.

Jumbo loans are typically available with either a fixed interest rate or an adjustable rate, and they come with a variety of terms. These types of loans are riskier to a lender, so borrowers typically must show larger cash reserves, make a down payment of 10% to 20% (or more), and have strong credit.

Requirements for a Jumbo Loan

Credit score

Lenders may require your FICO score to be higher than 700, and sometimes as high as 720, to qualify for a jumbo loan.

Debt-to-income ratio

Lenders will also consider your debt-to-income ratio (DTI) to ensure you don’t become over-leveraged, though they may be more flexible if you have plentiful cash reserves.

Some lenders have a hard cap of 45% DTI, however.

Cash reserves

You’re more likely to be approved for a jumbo loan if you have ample cash in the bank.

It’s not uncommon for lenders to ask jumbo loan borrowers to show they have enough cash reserves to cover one year of mortgage payments.

Documentation

To prove your financial health, you’ll need extensive documentation, perhaps more than for a conforming loan. You should be prepared to hand over your full tax returns, W-2s, and 1099s when applying, in addition to bank statements and information on any investment accounts.

Appraisals

Some lenders may require a second home appraisal for the property you’re planning to purchase. After learning about jumbo loans, it’s time to get educated about VA loans on the next page.