A mortgage is considered a jumbo loan when the borrowed amount is more than $647,200, although that limit varies by state. Some states, such as California, have much higher loan limits because property values are higher than in other parts of the country. Due to rising home prices and a sustainable housing market, jumbo loans are becoming more and more popular.
Because of our location and demographic, The Hargrave Group specializes in this loan type. Jumbo loans, because of their higher loan balance, have more stringent requirements than conventional or government loans, however, a jumbo loan can be obtained for as little as 10% down.
In addition to a slightly higher down payment requirement, jumbo loans will have higher reserve requirements and a lower debt-to-income-threshold. In most cases, the debt-to-income ratio cannot exceed 50% and the minimum reserve requirement will be 6 months of principle, interest, taxes, and insurance.
Owning additional property other than a primary residence can increase the reserve requirement to include these additional properties. Jumbo loans require higher credit scores and interest rates are risk-based, similar to conventional loans. The higher a client’s credit score, the lower the interest rate will be.
Jumbo loans will also direct more focus on the total credit profile and will have guidelines that address derogatory credit, such as bankruptcies, foreclosures, charge-offs, and late payments. Jumbo loan requirements are much less lenient than other loan types.
It is extremely important that candidates for jumbo loans work with a knowledgeable mortgage team and one that has access to many different investors and loan options.