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Getting a Jumbo Loan

For 2021, the Federal Housing Finance Agency (FHFA) which oversees Fannie Mae and Freddie Mac raised the maximum conforming loan limit for a single-family property from $510,400 in 2020 to $548,250. In high-cost areas, including parts of California, New York, Washington D.C. and others, the limit for conforming mortgage loan limits is 150% of that limit, or $822,375. 

What if you need to borrow more? You will need a jumbo mortgage loan, defined as a loan that’s any amount over conforming limits. Jumbo loans have no ceiling established by the FHFA, so it is up to your lender to establish limits, according to Ally.com. If you are wondering whether you will need a jumbo loan to buy your next home, check conforming loan limits for your area and click here. 

Can you buy a home using a jumbo FHA loan? Yes, for 2021 the conventional loan limit for an FHA mortgage loan is $356,362, with a high-cost limit of $822,375, but there are many counties in Hawaii, Alaska and Guam where the limit is as high as $1,233,550. To find FHA loan ceilings for your area, click here.  

What does it take to qualify? Ally suggests that banks consider the same criteria for jumbo loans as for conforming/conventional loans: 

  • Income

  • Employment and work history

  • Savings and other assets

  • Debt and your debt-to-income ratio (or DTI)

  • Credit history and credit scores

But, because jumbo loans are non-conforming and non-conventional, they pose a higher risk to lenders. Banks must keep these loans on their books, because non-conforming loans can’t be packaged into securities for purchase on the secondary market by Fannie Mae and Freddie Mac. Therefore, they can’t afford to make as many jumbo-sized mortgage loans because their money supply isn’t being replenished. Qualification requirements can vary from lender to lender, so you can anticipate some or all of the following: 

  1. Higher credit scores required of 660/680/700 VS. 620 for conforming loans

  2. Higher down payment requirements, perhaps 10% to 20% VS 3% for conforming loans. 

  3. Higher scrutiny of financial sources, particularly for other sources of income besides that reported on W-2s.

  4. Higher cash reserves are required as a cushion against default, perhaps as much as nine to 12 months on hand.

  5. Higher interest rates can range from a quarter to half a point higher to as much as two points during volatile economic periods than conforming loans interest rates for borrowers with similar financial profiles. 

Not all lenders provide jumbo loans, so it is wise to shop around to get the best terms. You can also ask your Berkshire Hathaway HomeServices network professional for referrals to lenders who are experienced and willing to make jumbo loans or that offer other loan products that allow you to meet the FHFA limits for high-cost areas.