Jumbo loans are mortgages that are larger than the standard loan size. Because jumbo mortgages exceed the “conforming” loan limit of $417,000, the maximum loan amount documented for purchase by Fannie Mae and Freddie Mac, these loans are considered “nonconforming” loans. Most jumbo loans are presently originated with big banks that intend to keep the mortgages on their books instead of selling the loan on the secondary market.
- Basic Qualification
Initiating in 2007, a massive credit squeeze and falling property values began to scare banks away from lending in the jumbo market. Jumbo loans have made a gradual comeback, but with much tougher guidelines. To qualify for a jumbo loan in this lending environment, the borrower can expect to meet at least the following credentials:
- Contributing a down payment of at least 20% for a purchase (in some rare situations a bank may allow 15% down payment) and in some cases exceeding 30%.
- A down payment of 25% is generally adequate and will yield the lowest interest rates.
- With virtually no exceptions, lenders require borrowers to have credit scores or 720 or better (minimum score depends on type of dwelling and loan amount). A 760 credit score or above is more favorable.
- Debt-to-income ratio (DTI) is usually limited to 38%, meaning that total monthly liabilities cannot exceed 38% of total gross monthly income (before taxes).
- Fully document two years of consistent income history.
- Maximum loan amount for 1-2 units of $2 million.
- Adjustable Rate Mortgage
These nonconforming so called “portfolio” loans epitomize the back to basics old-fashioned lending style, in which institutional lenders make profits by charging higher interest rates on lending than they pay on their consumers’ deposits. The past few years, interest rates paid to customers on deposits are historically low, but they will rise someday. Banks tend to benefit from jumbo adjustable-rate loans (ARMs) when rates rise after the initial fixed period. The interest rates on jumbo ARMs will rise with the rates paid on consumer deposits. Therefore, jumbo ARM products are priced more favorably than most fixed-rate products. The most popular loan for a jumbo mortgage is currently the 5/1 ARM, which possesses an introductory fixed-rate for the first 5 years of the loan amortization and then adjusts annually with protective caps thereafter.
Because jumbo loans are primarily portfolio mortgages, refinancing guidelines are similar to purchase guidelines for owner-occupied homes. Loan-to-value and credit score requirements have a wide-range variance between lenders. For example, a rate and term refinance will generally limit the loan-to-value to 70% or 75% loan-to-value. Cash-out refinance loan-to-value and credit score stipulations are likely even more conservative.
With a less standardized jumbo lending environment, it pays to use a broker to shop for the best jumbo loan as these types of mortgages are no longer market commodities.
Jumbo Mortgage Highlights
- An opportunity to purchase a home up to $2,000,000.
- Purchase your primary home with as little as a 15% down payment with no mortgage insurance.
- Enjoy the ability to pay-down or payoff your mortgage at any time without a pre-payment penalty.
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Learn about alternative loan programs that may fit your goals.
- Purchase a primary home with as little as a 3.5% down payment.
- Qualify with less stringent qualification and credit requirements.
- Access to all fixed-rate and adjustable terms.
- Ability to purchase a home with as little as a 3% down payment.
- Flexible mortgage insurance choices. Learn about mortgage insurance options.
- Fixed-rate and adjustable-rate program options.
- Avoid mortgage insurance all together with only 20% down and access the most competitive rates the wholesale market has to offer.
- Purchase your primary home with absolutely no down payment.
- No monthly mortgage insurance (PMI).
- Fixed-rate and adjustable-rate program options, including jumbo loans.
- Purchase a Fannie Mae-owned home with a down payment as low as 3%.
- No appraisal requirement.
- No private mortgage insurance (PMI).
- Credit qualification flexibility as low as a 620 score.
- No down payment requirements.
- Designed for relief for low to moderate income qualifiers (check to see if this program is available in your area).
Why you should choose Starwest Mortgage for your home purchase:
- As a broker, Starwest gives you access to the most competitive rates, fees, and programs the wholesale lending industry has to offer. Why use a broker?
- No Closing Cost program
- Get loan status updates anytime, anywhere. Take advantage of our online tools.
In addition to mortgage options, learn your Home Purchase Responsibilities and information to keep you on track throughout your purchase transaction…