Your loan officer can tell you what the conforming loan limit is in the area where you want to buy, and whether you need to look at jumbo home loan options. You can also check theFHFA website to find the conforming loan limit for your county.
If the loan amount (not the purchase price) on a home you wish to purchase will exceed these limits, you'll probably need to get a jumbo mortgage. Jumbo loans have interest rates around -- and sometimes even lower than -- conforming loans. However, since jumbo loans aren't eligible to be purchased by Fannie Mae and Freddie Mac, and therefore represent a greater risk to the lenders, they tend to have stricter requirements. Also, closing costs may be higher on a jumbo loan because many of them reflect a percentage of the loan amount.
The jumbo loan limit is set by the lender and is typically between $1 million and $5 million.
How to qualify for a jumbo mortgage
The lending standards for jumbo mortgage loans vary by lender, but in general, here's what to expect.
Credit score needed for a jumbo loan
Credit score requirements tend to be a little more stringent for jumbo loans. You'll need a strong credit history, which typically means a FICO® Score of 700 or higher for a jumbo loan.
Debt-to-income ratio for a jumbo loan
You can get approved for a jumbo mortgage with a debt-to-income ratio as high as 45%, but these loans often have higher reserve requirements than conforming loans. You may need to show one year's worth of mortgage payments in your bank account.
Down payment requirements for jumbo loans
Many jumbo lenders require a down payment of at least 20%, so private mortgage insurance (PMI) is not an issue. However, some jumbo lenders accept a lower down payment and charge PMI, which will increase your monthly payment. Use a mortgage calculator to figure out how much cash you might need.
Appraisal requirements for a jumbo loan
Like a conforming loan, the property's appraisal must justify the price you're paying for the home. Many jumbo mortgage lenders require two appraisals, as opposed to just one for a conforming mortgage.
FHA jumbo loan
The vast majority of FHA loans are for amounts under the one-unit base limit ($548,250 in 2021). An FHA loan above the one-unit base limit is called an FHA high balance loan, which some people call an FHA jumbo loan. In fact, it's not a jumbo loan. All FHA loans are subject to conforming loan limits in the county where the property is located, and some counties have higher limits (up to $1,581,750). See our list of the best FHA lenders to learn more.
VA jumbo loan
VA borrowers who have full entitlement are not subject to a loan limit. If you qualify, you can get a VA loan of any size.
Loans to borrowers with remaining entitlement (less than full entitlement) are subject to conforming loan limits. If you need a bigger loan, your lender may be willing, if you make a down payment equal to 20% of the amount that exceeds the conforming loan limit.
Ready to get a jumbo loan? See Motley Fool Money's list of best jumbo loan lenders.
There are advantages to a jumbo loan mortgage loan vs. a conforming loan. With a jumbo loan, you can borrow more, which could allow you to get into a home you otherwise wouldn't be able to buy. And with today's low mortgage rates, there isn't an obvious financial penalty for borrowing a larger amount of money. Jumbo mortgage rates can be even lower than conforming mortgage rates.
You should also be aware of a few key disadvantages to jumbo loans. Jumbo loan credit requirements can be stricter. Since these loans can't be purchased by Fannie Mae or Freddie Mac, they are seen as riskier than conforming loans. While you may be able to qualify for a conventional mortgage with a FICO® Score as low as 620 or an FHA loan with a score in the 500s, those scores probably won't get you a jumbo loan. Jumbo mortgage lenders typically require a score of 700 or higher.
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