What Homebuyers Need to Know about Jumbo Mortgages

Nearly 90 percent of all mortgages from banks nowadays are backed by two major government-sponsored enterprises: the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. Now, how about the remaining 10 percent? Part of that other percentage has a special categorization of loans called “jumbo mortgages”. This is a financing option offered to people who buy expensive properties that cost half a million dollars or more.

What is considered a jumbo mortgage?


When applying for a loan, the main criterion is the size of the mortgage. In 2015, the cap for conforming loans in most parts of the country is $417,000 for a single-unit property. But over 208 counties in the country are designated as competitive areas where the caps can be as much as $625,500 or higher for a single-unit property. This means that any kind of loan that exceeds the limits are considered a jumbo mortgage. Most banks do not issue jumbo mortgages that are as big as tens of millions of dollars. And since such loan is a non-conforming loan, it is not subject to the two government-sponsored enterprises.

How do you get approved for the jumbo mortgage?


Firstly, you will need to provide evidence that you have more than enough cash to cover the repayments, which will most likely be very high should you choose the standard 30-year fixed-rate option. Aside from having cash on hand, you’ll also need to prove you have a steady source of income, which means that a lender could be looking into your tax returns for the last two years or more.

Secondly, you have to know that although a jumbo mortgage is a non-conforming loan, it could still fall within the guidelines of what is considered a qualified mortgage by the Consumer Financial Protection Bureau. One of the guidelines stipulate that your monthly debt-to-income ratio should be 43 percent or less.

Thirdly, your credit history must be in excellent standing. Most lenders don’t approve a jumbo mortgage for a borrower with a credit score that is 700 or less.

Lastly, you will need to make a down payment of 20 to 30 percent of the total price of the property.