What type of loan is best for you?
Home prices are skyrocketing across the United States as more and more prospective buyers enter the market in search of their dream home. But if you’re looking to move up from your starter home to something a bit more spacious (and luxurious), it can be difficult to know what makes for an affordable home loan.
Discover which home loan is best for you
When navigating all of the many financing and mortgage options available to you, a qualified mortgage lender is your best guide. That’s why we here at Caliber Home Loans — ranked #1 in overall volume among non-bank mortgage lenders in America, as determined by Scotsman Guide — have assembled this handy FAQ about jumbo home loans. Read on to learn about what jumbo loans are, how they’re different from other home loan products, what it takes to qualify for one, what to expect on your annual tax return should you take out a jumbo loan and more.
What is a Jumbo Loan?
Jumbo loans, also known as jumbo mortgages, are like traditional mortgages in most respects. The key exception to this rule is that a jumbo loan allows a home buyer to borrow a greater sum than would be possible with a traditional mortgage. If you’re searching for homes in a higher price range, a jumbo loan may be a good option for financing your purchase.
Jumbo loans are also non-conforming. That means they aren’t managed by either Freddie Mac or Fannie Mae and have different conforming limits as set by the Federal Housing Finance Agency (FHFA). In 2018, the FHFA set its conventional home loan limit at $453,100 for most U.S. states, with variances in those states where home prices are higher-than-average.
To qualify for a non-conforming loan, borrowers must typically demonstrate an acceptable debt-to-income (DTI) ratio and present additional documentation testifying to their creditworthiness.
Caliber Home Loans offers jumbo loans with funding up to $2.5 million (or $3 million through the Elite Access Portfolio Lending program).
How is a Jumbo Loan Different from other Conventional Loans?
These larger loan amounts aside, several other variables set jumbo loans apart from their conventional counterparts. Jumbo loans are not guaranteed by Fannie Mae or Freddie Mac. Consequently, jumbo loans come with different underwriting requirements and tax implications.
How to Qualify for a Jumbo Loan
Jumbo loans generally have tighter underwriting requirements. Because these loans are not backed by Freddie Mac or Fannie Mae, they’re frequently categorized as bearing more risk than conventional loans. That said, many lenders are still eager to work with clients seeking a jumbo loan.
To qualify for a jumbo loan, borrowers often need to provide evidence of sufficient income to repay the debt, satisfactory credit scores and significant assets for a down payment. A borrower with a very low DTI ratio or little to no debt may qualify with a lower annual income than someone with a higher DTI for example. Additionally, many lenders recommend that you have enough cash reserves to cover between six and 12 months of mortgage payments.
Whether or not someone qualifies for a jumbo loan is up to the individual lender, but the ideal jumbo loan candidate will have the following:
A satisfactory credit history. An acceptable DTI ratio.Cash reserves on hand to pay six to 12 mortgage payments.Sufficient income, proven through documentation such as W2 forms, tax returns and bank statementsSelf-employed individuals will have additional requirements
Do Jumbo Loans Have Different Interest Rates?
Much like conventional loans, jumbo loan borrowers can qualify for fixed or adjustable rate (ARM) mortgages featuring several term options. Additionally, interest-only jumbo loan options exist. Ultimately, the interest rate of a jumbo loan is largely dependent on both market conditions and the borrower’s individual situation.
What are the Benefits of a Jumbo Loan?
The major benefit of a jumbo loan is that it provides financing in excess of the limitations set by Fannie Mae and Freddie Mac, helping borrowers get into more expensive homes. Although the qualifications can be stringent and the payment will be higher due to the increased amount financed, there are not many downsides to acquiring a jumbo loan to purchase a property.
Can Jumbo Loans Be Used For An Investment Property?
Yes. Jumbo loans can be used for primary residences, investment properties and vacation homes. However, interest rates may vary depending on the nature of property you’re looking to purchase — and the purchase amount you’re looking to finance.
What Kind of Down Payment is Required for Jumbo Loans?
As with all aspects of qualifying for a home loan, each lender will have different conditions with respect to a down payment. Many will expect between 10 to 20 percent, with most leaning toward the latter. There are benefits to making a substantial down payment, however. If you put at least 20 percent down on your home, you very likely will not have to pay for private mortgage insurance (PMI). Jumbo home loan mortgage insurance can significantly increase your monthly payments and therefore impact your DTI ratio. Whenever possible, it’s always a wise move to put more money down.
Borrowers should also note that Caliber Home Loans provides some Jumbo Loan options that do not require PMI and provide for financing up to 95% of the home's value or purchase price.
Can I Get A Jumbo Loan with a Low Credit Score?
As noted, the requirements for obtaining a jumbo loan may be more strict than those set for most conventional home loans, and borrowers with strong credit are more likely to gain approval. However, both high income and access to liquid assets may offset a credit event. Check with your prospective mortgage provider for additional information.
What Are the Tax Implications of a Jumbo Loan?
Just because a jumbo loan is larger doesn’t mean your tax deduction will be greater. the Internal Revenue Service may set limits on the tax deductibility of interest. Discuss your options with your tax professional before committing to any new mortgage to avoid any headaches come tax time.
Let Us Guide You Home
Caliber Home Loans offers a variety of mortgage solutions, including jumbo loans. At Caliber, we pride ourselves on our hands-on, customer-driven approach to lending. By combining our knowledge of local real estate markets with the strength and reliability of a national lender, we offer stability, security and peace of mind to anyone searching for a new community to call home. Connect with a local branch to get pre-qualified* for the purchase of your dream home today.
*A pre-qualification is not an approval of credit and does not signify that underwriting requirements have been met.