A jumbo mortgage, also called a jumbo loan, is a loan of $417,000 or more in most markets, and over $625,500 in some other more luxurious regions. If you’re in the market for a jumbo loan, be prepared for some additional scrutiny. Mortgage lenders are usually stricter when looking at jumbo loan applicants, but the good news is that jumbo loans are getting a bit easier.
Requirements for Jumbo Loans
Mortgage providers commonly impose higher standards for borrowers applying for a jumbo loan because there’s more money at risk. That is why they often require a larger down payment and a higher credit score for jumbo loans as compared to the smaller conforming home loans.
Federal laws limit the amount of loans that federally funded mortgage programs can acquire. Loans that fall within these funding limits are known as conforming loans. Anything over those limits is considered a jumbo loan.
When it comes to jumbo mortgages requirements and other specifications, standards differ from one lender to the next. The good news for prospective borrowers is that it appears to be getting a bit easier to qualify. Some mortgage companies are easing up on the required credit score for a jumbo loan, which used to be in the mid-700s.
Jumbo Loan Limits Vary by Location
Conforming loan limits vary by location. The limits are established by the Federal Housing Finance Agency (FHFA). Annually the FHFA reviews loan limits concerning the price of a home and makes any needed adjustments.
Amazingly, jumbo loans usually offer lower rates than smaller conforming loans. That hasn’t always been the case, but it’s been the tendency for the past few years because of the shifting demand of the secondary loan market.
The higher your credit score is, the better your chances of being approved for a jumbo mortgage. Most lenders want to see a credit score of 650 or higher, but that number isn’t set in stone. They will also consider other factors, like your employment history and debt to income ratio.
Signs of Easing in the Mortgage Market
According to a CNN Money report from 2014, “During the past several years, most jumbo borrowers needed at least a 700 credit score to get a loan. But now lenders are giving loans to borrowers with credit scores of as low as 650.”
Additional signs of an easing market for jumbo loans came from the Mortgage Bankers Association (MBA) when they released the results of its Mortgage Credit Availability Index. According to the Chief Economist with the MBA, Mike Fratantoni, “Mortgage credit availability increased in August and has increased in eight of the last nine months. While much of the loosening has been for jumbo loan products, the availability of conforming conventional mortgage credit has also somewhat increased…”
To summarize, qualifying for a jumbo loan is typically more stringent than qualifying for other types of loans, but it appears to be getting a little easier.
Note: Opinions expressed are solely my own and do not express the views of my employer