A jumbo loan is a mortgage that has a maximum loan amount above the conforming loan limit set by the Federal Housing Finance Agency (FHFA). In 2018, the jumbo mortgage limit for single family homes is any mortgage above $453,100 in most counties, but it can reach as high as $679,650 in others.
If you’re interested in a jumbo loan, then visit LendingTree. Both homeowners and investors can find jumbo loans for single-family homes and multifamily properties. You can review offers from multiple lenders at once to ensure you get the most competitive rates. Get prequalified online in just a few minutes.
How a Jumbo Loan Works
A jumbo loan is a loan that exceeds the conforming loan limits that the FHFA sets for loans acquired by Fannie Mae or Freddie Mac. This is common in high cost areas and for investment properties. A jumbo loan generally has stricter borrower qualifications and requirements than a conforming loan because of its high loan limit. Borrowers are usually investors purchasing luxury rental properties or two- to four-unit investment properties and owner occupants buying properties in high cost areas.
You should expect to have nine-plus months of cash reserves on hand for a primary residence and 18-plus months cash reserves for an investment property, and a minimum FICO score of 680. Lenders consider a jumbo loan a higher risk loan than a conforming loan because of the high loan amount, so be prepared to submit more documentation (such as investment statements and profit and loss statements) than is required with other loans. However, you can expect the rest of the loan process to be the same as a conforming loan.
A jumbo loan can be used by first-time homebuyers, owner occupants and investors who meet the qualifications. You can apply for a jumbo loan in your name or in your company’s name, such as an LLC, and there’s no difference in how the process works. However, either way, you will be responsible for the loan because it will be a recourse loan, meaning you’re personally guaranteeing the loan regardless of what name the loan is in.
Jumbo loans can finance single family homes and two- to four-unit properties in good condition.
A jumbo loan can’t typically be used to finance a property that needs a substantial amount of rehab work. They also don’t offer loans for renovating the property, so if you want to acquire and renovate a property, you may want to consider an FHA 203k loan.
Who a Jumbo Loan Is Right For
A jumbo loan is right for an investor or owner occupant who wants to finance a property that is above the maximum loan amount set on conforming loans, which is $453,100. Generally, investors use jumbo loans to purchase investment properties in what Fannie Mae considers high cost areas.
They also use them to purchase luxury rental properties or properties that are performing well and so are priced higher. Investors can use jumbo loans to purchase a duplex, triplex or quadruplex as well. Owner occupants will typically use a jumbo loan to purchase a primary residence in a high cost area such as Alaska or Hawaii or to purchase a luxury property that may include some acreage, a pool, a guest house or custom finishes.
Jumbo Loan Rates, Terms & Qualifications
Jumbo loan rates, terms, and requirements vary by lender but generally, you need to have a credit score of 680 or higher and a down payment of at least 10 percent. Because of the high loan amount, lenders need to feel confident that you can afford to pay back the loan. They generally look at your overall financial picture, including your salary and debt to income ratio.
Jumbo Loan Rates
Jumbo loan rates and costs typically fall into these ranges:
- Jumbo Loan Rates: 15-year fixed: 4.5%, 30-year fixed: 4.75%, 5/1 ARM: 4.0%, 7/1 ARM: 4.13%,10/1 ARM: 4.38%
- Appraisal: $500 – $1,500
- Closing Costs: 2% – 5%
Lender fees vary by lender but include things like an application fee, which is usually a few hundred dollars and an origination fee, which is generally 0.5 percent to 1 percent of the loan.
Jumbo loan rates are typically comparable or slightly higher than conforming loan rates. Jumbo loans can either be fixed or adjustable. The adjustable jumbo loans typically have 10/1, 7/1, and 5/1 ARMS. This means that jumbo loans are fixed for a certain period of time and can then adjust once per year for the remainder of the term.
For example, a 10/1 jumbo loan means that the jumbo loan is fixed for the first ten years of the loan and can then adjust once per year for the remainder of the term. The first number, the 10, stands for the number of years the rate can’t change, and the second number, the 1, stands for the number of times it can adjust during a one-year period (after the initial fixed period).
You may want to use an adjustable rate mortgage because the rate tends to be lower in the beginning. If you know you will be expecting a salary increase, promotion, business sale, etc., you may opt for an ARM because you can afford the rate to rise after the fixed term is over. However, if you’re retiring or don’t want the uncertainty of an adjustable rate, you would most likely choose a fixed rate jumbo loan.
Typically, jumbo loan rates can vary among jumbo loan providers by as much as half of one percent on a day-to-day basis. That’s why it’s a good idea to get jumbo loan quotes from a few different providers. In comparison, conforming loan rates generally vary less than a quarter of one percent between providers.
Jumbo Loan Terms
Jumbo loan terms are generally:
- Term: 15 – 30 years
- Funding Time: 30 – 60 days
Jumbo loans typically have two terms: 15 years or 30 years. A 15-year jumbo loan generally has a slightly lower interest rate than a 30-year jumbo loan. For example, a qualified borrower may get a jumbo loan rate of 4.5 percent for a 15-year term and 4.7 percent for a 30-year term.
Keep in mind that the property doesn’t have to be move-in ready, but it does need to appraise and can’t require any significant improvements.
Jumbo mortgage lenders typically lend up to 90 percent LTV for a primary residence and up to 80 percent for an investment property. However, some lenders are more conservative and lend up to 80 percent LTV for a primary residence and only up to 70 percent LTV for an investment property. When you shop for a lender, this will be an important thing to bring up.
For example, if the property appraises for $850,000 and the lender will lend up to 80 percent LTV, that means the lender will lend up to $680,000 on the property with the remaining $170,000 coming from the borrower’s down payment. Typically, a lender will only allow a borrower to have four jumbo loans at one time. If they want an additional loan, they will need to be granted an exception based on net worth, assets, etc.
Jumbo Loan Qualifications
Jumbo loan qualifications include:
- Credit score: 680+ (check your score free here)
- Down Payment: 10%-plus for a loan up to $1,500,000; 20%-plus for a loan over $1,500,000; 20%-plus for all investment properties
- Cash Reserves: 9-plus months for primary residence; 18-plus months for investment property
- Debt to Income Ratio: 43% or less
- Documented Income: 2-plus years
- Appraisal: A lender may require two independent appraisers
Jumbo loan requirements vary among lenders, but they generally look at the overall financial picture of the borrower. You should expect to submit two years of tax returns, current pay stubs, investment account summaries, and even bank statements.
Jumbo Loan Providers
Jumbo loan providers are generally national and local banks and credit unions, as well as online lenders. These jumbo loan providers all consider jumbo loans any loans above the conforming loan amounts, but that’s where the similarities end. They each have their own lending criteria, including minimum credit score, cash reserves, and jumbo loan rates.
Four of the best jumbo loan providers are:
LendingTree is an online lending platform that shows borrowers different jumbo loan options for free. The jumbo loan providers on LendingTree offer jumbo loans for owner occupants and investors. They have a quick online quiz that you can fill out with questions about the buying stage you’re in, your desired purchase price and your geographic location. Rates, terms, and qualifications are disclosed based on your financial qualifications but vary among borrowers.
LendingTree is right for borrowers who want to price shop before making a decision on a jumbo loan provider. They’re also right for borrowers who want a streamlined, online loan application process and don’t want to go into a bank branch. You can get prequalified online in just a few minutes.
U.S Bank is a reputable nationwide bank that offers jumbo loans, conventional mortgages, refinancing and auto loans. Their site offers a range of jumbo loan rates and terms so borrowers can get an idea of what they should expect. Their 30-year jumbo loan rates start at 4.75 percent. You can start your prequalification process online or click to find a loan officer in your area. You can also apply for a jumbo loan using their online portal.
U.S Bank is right for borrowers who already have a banking relationship with them or who want to obtain a car loan and a jumbo loan from the same institution. They’re also right for borrowers who like the transparency of seeing typical jumbo loan rates upfront, which all lenders don’t offer.
Bank of America is one of the largest banks in the world and it offers jumbo loans as well as other loan products and banking services. They generally offer loans in most areas, and you can create an account online to upload documents and electronically sign documents, which makes the application process faster.
Bank of America is right for investors who want a bank that has nationwide locations and is a well-known financial institution. They’re right for investors who want to go into a branch to apply for and discuss the jumbo loan application process or who already have a banking relationship with Bank of America.
New American Funding is an independent, family-owned mortgage lender that lends in all states except N.Y. and Hawaii. They offer jumbo loans as well as conventional loans, VA loans, and home improvement loans. They have closed over $22 billion in loans so far. New American Funding uses manual underwriting when they evaluate borrowers, which gives them more flexibility to approve loans based on the borrower’s specific situation.
New American Funding is right for borrowers who want a more personalized jumbo loan application process and who appreciate a family-owned company. They’re also right for borrowers who may not otherwise qualify for a jumbo loan because they evaluate borrowers on a case-by-case basis instead of strictly using a loan underwriting formula that some bank use.
Jumbo Loan Limit
The jumbo mortgage limit is $453,100 for one-unit properties in most states and $871,450 for four-unit properties. However, in high-cost areas, the mortgage limits are higher. Typically, high-cost areas have jumbo mortgage limits starting at $679,650.
Something else worth knowing about jumbo loan limits is that the 2018 Tax Cuts and Jobs Act dropped interest deduction from $1 million to $750,000. This means that more jumbo loans will have interest that will not be fully deductible.
“Most lenders that offer a jumbo loan will carry a stricter income requirement as well as reserve funds needed for assets. In some cases for loans over 1 million dollars, they will also require two appraisals completed to determine the value of the property.”
– Ralph DiBugnara, President, Home Qualified
How to Apply for a Jumbo Loan
You can generally apply for a jumbo loan directly on the provider’s website or over the phone with a jumbo loan specialist who acts as your agent during the transaction. You can also apply at a local branch if they have a brick-and-mortar location. Regardless of how you apply, you will need a copy of your identification, Social Security number, tax returns, pay stubs and bank statements.
Here are the four steps you will typically follow when applying for a jumbo loan:
1. Choose a Jumbo Mortgage Lender
Assuming that a jumbo loan is right for you, the first step of the jumbo loan application process is choosing a lender. As we mentioned earlier, you should shop around and compare a few lenders because rates and qualifications vary. You should look for a lender that lends in your area, is reputable, and has competitive rates.
It’s a good idea to start with the bank or credit union that you already have a banking relationship with and see if they offer jumbo loans. Then, you can check other banks and online lenders and compare their rates and qualifications. There’s no set-in-stone way of choosing a lender, but just make sure they offer competitive rates, you meet their qualifications, they are reputable and they lend in your area.
If you’re ready to apply for a jumbo loan, contact LendingTree. They’re a reputable online lender that offers competitive rates for prime borrowers. They offer jumbo loans for both investors and owner occupants and you can get prequalified online in just a few minutes.
2. Get Preapproved for a Jumbo Loan
Getting preapproved is perhaps the most important step of the jumbo loan application process. Typically, the preapproval process and letter can be done within one to three business days. The lender will run your credit and ask for proof of income from pay stubs and/or tax returns. Each lender has their own preapproval process, and some are more stringent than others. Whatever information they don’t ask for during this phase, they will ask for during the underwriting phase.
You will need a preapproval letter before you can make an offer on a property because this letter shows the seller you’re serious and can afford the house. The preapproval letter will also let you know the maximum jumbo loan amount that you qualify for.
You can use it to set your budget. Keep in mind, your preapproval letter helps dictate your budget, but you still want to make sure you can afford the property so you don’t have to get a loan for the full amount of the preapproval.
3. Submit Documents, Appraisal & Go Through Underwriting
This phase of the application process is where the lender thoroughly reviews all of your information, including your credit report, proof of income, debt to income ratio, and bank statements. They typically want to see nine-plus months of reserves for a primary residence and 18-plus months of reserves for an investment property. This means that you need enough to cover approximately nine or 18 months of mortgage payments, taxes, and insurance.
A jumbo loan has a high loan limit so jumbo mortgage loan providers generally pay more attention to cash in the bank than other lenders. During this process, the lender will order an appraisal, but sometimes two independent appraisals depending on the loan amount. This loan amount may be over $1 million for some lenders and much higher for others.
4. Get Approved & Go to Closing
This is the last step of the jumbo loan application process. From the time you apply for a jumbo loan to closing, it’s generally 30 to 45 days. The lender reviews the appraisal and all of your documents and they issue you a mortgage approval. Once you have this approval, you can schedule the closing around the buyer’s and seller’s schedules.
The closing process generally takes 60 to 90 minutes and is usually performed at the title company’s office. You give your deposit check (in the form of certified funds), bring your identification, and pay closing costs, which the lender will give you ahead of time. You sign the loan documents, the deed is transferred and you receive the keys to your new property.
Alternatives to a Jumbo Loan
After reading about a jumbo loan, you may decide that it’s not for you, that you don’t qualify, or that you just want to see what other options are out there. If that’s the case, there are a few viable alternatives.
Some alternatives to jumbo loans include:
- Conforming Loan: Give a larger down payment on the property and you may be able to qualify for a conforming loan.
- Investment Line of Credit: Get an investment LOC if you have 40 percent or more equity in another property; you can use this to purchase the home or as down payment funds.
- Cash-Out Refinance: Take cash from another property and use it to purchase the new property or as down payment funds.
- Hard Money Loan: If it’s an investment property and you plan to flip it.
- Rehab Loan: Also used for an investment property that needs to be rehabbed before it is flipped.
- Seller Financing: The seller agrees to accept installment payments from the buyer so the buyer doesn’t have to go through a bank, but the terms and conditions vary widely.
Keep in mind that instead of getting a jumbo loan, you can always provide a larger down payment. By providing a larger down payment, you will be able to take out a loan that fits within the conforming loan limit.
Jumbo Loan Frequently Asked Questions (FAQs)
Can You Get a Jumbo Loan on a Rental Property?
You can get a jumbo loan to purchase a rental property with one to four units as well as owner occupied properties. Generally, there are no owner occupant requirements for jumbo loans. Instead, the lender looks at the property value and the borrower’s qualifications. However, a property that has more than four units will generally need a multifamily loan.
What Is an FHA Jumbo Loan?
An FHA jumbo loan is a loan that is larger than the conforming loan limits and is backed by the Federal Housing Administration. Its purpose is to make homeownership more affordable to more people nationwide, regardless of what area they live in. These FHA jumbo loans typically offer lower down payment requirements and lower interest rates than other jumbo loans. FHA jumbo loans also require the borrower to pay an FHA Mortgage Insurance Premium of 0.85 percent annually and a one-time, 1.75 percent upfront FHA Mortgage Insurance Premium.
Are Jumbo Loan Mortgage Rates Higher Than Conventional Rates?
Typically, jumbo mortgage rates are comparable to or slightly higher than conventional rates. Generally, jumbo loan fixed rates start at 4.5 percent for prime borrowers. However, each lender has their own guidelines and your jumbo loan rate will depend on your borrower qualifications (such as credit score and down payment amount).
Did the Jumbo Mortgage Limit Change in 2018?
The jumbo loan limit was $424,100 in 2017; the 2018 jumbo loan limit is now $453,100.
The Federal Housing Finance Agency (FHFA) announces the maximum conforming loan limits each year, and sometimes they stay the same and other times they increase.
Keep in mind that these loan limits are for one-unit properties, so properties with two to four units or properties in high-cost areas will have higher loan limits.
What Is a Super Jumbo Loan?
A super jumbo loan is a loan that a jumbo mortgage lender decides exceeds the maximum jumbo loan amounts. The amount of what is considered a super jumbo loan varies among lenders. For example, one lender may consider a super jumbo loan any loan over $1,000,000, and another lender may consider a super jumbo loan any loan over $2,000,000. Basically, they’re just larger loan amounts than jumbo loans and still require strict borrower qualifications. The term “super jumbo loans” is generally unknown outside of the mortgage lending industry.
Can First-Time Homebuyers Get a Jumbo Loan?
First-time homebuyers can get a jumbo loan as long as they meet the jumbo loan qualifications. These qualifications include things like two-plus years of documented income and a debt-to-income ratio of 43 percent or less. However, these qualifications may be more stringent for first-time homebuyers than with borrowers who are not first-time homeowners.
“First time homebuyers have more restrictions in that they usually have a maximum loan amount of $1,000,000 to $1,250,000 regardless of down payment. They usually require more reserves than people who have previously owned homes.”
– Cary Grandfield, Mortgage Loan Officer, Premier Equity Lending
A jumbo loan is a loan that exceeds the conforming loan limit, which is $453,100 in most states. Jumbo loan rates are typically 4.5 percent or more and jumbo loan terms generally range from 15 to 30 years. Jumbo loans are offered by banks, credit unions and online lenders, and they all have varying lending criteria and qualifications.
If you want to get a jumbo loan on your investment property or primary residence, contact LendingTree. Both homeowners and investors can find jump loans for single family homes and multifamily properties. You can review offers from multiple lenders at once to ensure you get the most competitive rates. Get prequalified online in just a few minutes.