If you need a home loan close to half a million dollars, you’re most likely going to need what is called a jumbo loan or jumbo mortgage. It’s a type of financing that surpasses the limits set by the (FHFA) Federal Housing Finance Agency. A jumbo loan isn’t qualified for purchase or guaranteed by federally backed companies. A jumbo loan is designed to finance luxury homes in highly competitive real estate markets. It has unique underwriting requirements and particular tax implications.
What are the Jumbo Loan Limits?
The value of a jumbo mortgage varies by state, region, and even county. The FHFA sets the jumbo loan limit for different areas annually. In 2019, the limit was $484,350 for most of the United States. That was up from $453,100 for 2018. For some counties with significantly higher home values, the limit was at $726,525.
The FHFA has a different set of allotments for areas outside of the mainland United States. As a result, the limit for a jumbo loan in Hawaii, Alaska, the Virgin Islands, and Guam, is also $726,525, or even higher.
What are the Requirements for a Jumbo Loan?
If you want to qualify for a jumbo loan, you should expect more strict credit requirements than if you were applying for a conventional loan. The reason is that jumbo loans carry more credit risk because there is no guarantee by government sponsored funding for these particular types of loans.
To get approved, you’ll need a credit score of at least 700 and a lower than average (DTI) debt-to-income ratio of under 43% and preferably closer to 35%. You’ll also need to show that you have accessible cash in savings or checking to cover your payments, which will be quite high if you are going for a typical 30-year fixed-rate mortgage.
The required income levels and cash reserves depend on the amount of the overall loan. All borrowers need a minimum of 30 days of pay stubs, along with tax forms for the previous two years. If you’re self-employed, expect the income requirements to be even higher and more stringent. You’ll probably need two or more years of tax returns and a minimum of 60 days of current bank statements. You’ll also need to show liquid assets and cash reserves equal to six months or more of your estimated mortgage payments. Borrowers also have to provide suitable documentation on all other loans they have along with proof of ownership of any non-liquid assets, such as real estate.
It’s Worth the Effort
Obtaining a jumbo loan does take longer, and requires a bit more work and time, but it’s certainly worth the effort. Imagine what it will be like to relax in your own luxury home and invite friends and family over to enjoy it with you. If you would like more information about the process or requirements, don’t hesitate to give us a call. We can help you every step of the way.
Note: Opinions expressed are solely my own and do not express the views of my employer