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
- For a 1-2 unit home, consumers can borrow up to $2 million.
- Refinance up to 75% or higher loan-to-value.
- Take advantage of the competitive jumbo 5/1 ARM pricing.
Calculate the number of months to break-even if you refinance the loan.
Refinance Break-Even Point
Learn about alternative loan programs that may fit your goals.
- Looking for a more traditional option? Choose from the most competitive rates available.
- Maximize your monthly income by changing the term of your loan.
- Potentially save thousands in interest over the first 5 to 7 years by selecting an ARM over a traditional fixed mortgage
- Refinance into the security and low rates of a fixed-rate government loan.
- Qualify with less stringent qualification and credit requirements.
- Access to all fixed-rate terms.
- Avoid the extensive qualification process.
- Available as a 30-year or 15-year fixed loan as well as a 5-year adjustable rate mortgage (ARM).
- No appraisal necessary.
- Marginal credit requirements.
- Lower your rate and payment if you are a spouse, military member, or qualified veteran.
- No monthly mortgage insurance (PMI).
- Fixed-rate and adjustable-rate program options, including jumbo loans.
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.