Jumbo loans allow you to borrow a larger sum of money than a regular conforming loan would. Typically, the loan limit for traditional, conventional loan set by Fannie Mae and Freddie Mac is around $484,000. Typically, Jumbo Loans are considered riskier because they are not financially backed by government entities like Fannie Mae and Freddie Mac. Each county has a different conforming loan limit, so it is important to check the parameters for each county before starting the loan process.
Although Jumbo Loans allow borrowers to take out a larger loan balance, it also means they have much stricter credit score requirements. Most lenders will require the borrowers FICO score to be 700 or more to qualify for the Jumbo Loan. They are also much stricter on the borrower’s debt to income ratio (DTI). Most lenders will not approve a borrower if their DTI exceeds 45%.
As you probably already have learned, the main difference between a Jumbo Loan and a Conventional loan is the size of the loan. Non-conforming loans require larger down payments. It is very unlikely that a borrower will qualify for a Jumbo Loan without putting more than 10% down. Jumbo Loans typically also warrant larger higher interest rates than a typical loan. Lastly, if you are entering into a Jumbo Loan program, you will probably have higher closing costs.
Take a look at our checklist to see the basic documents you’ll need to apply.