Jumbo loans: Key requirements and qualifications you need to know

Looking to finance an expensive property? You might be in need of a jumbo loan. As the name implies, these loan products are available for borrowers when a “traditional” or conventional mortgage won’t cover the cost of their home. So who decides what qualifies as expensive—after all, isn’t price subjective?

Jumbo loans are required when the loan amount in question exceeds certain guidelines or loan limits set by the government. If you’re hunting for luxury homes, looking at houses located in ritzy zip codes, or need to refinance an existing home loan with a large balance, then a jumbo loan might be necessary. Here’s everything you need to know about jumbo mortgages, their conditions for approval, and how to decide if this financing option is right for you.

What are jumbo mortgages?

Jumbo loans are a type of mortgage designed for financing a home purchase or refinance with a balance that exceeds loan limits set by the Federal Housing Finance Agency (FHFA). The FHFA is the government organization that oversees and regulates certain mortgage guidelines to help protect borrowers and lenders alike. Mortgages that do not meet, or “conform to,” FHFA standards are considered non-conforming mortgages. Rather than being backed by the government, jumbo loans are issued by private companies like Better Mortgage.

To offset the additional risk, jumbo mortgage providers need more reassurance from borrowers that they will be able to pay back the loan. This means jumbo loans often come with stricter qualifying requirements and higher interest rates. Unlike conforming loan borrowers, jumbo borrowers typically need high credit scores, larger down payment amounts, more assets, and lower debt-to-income ratios to be approved.

Jumbo loan limits and amounts

Conforming loan limits are updated by the FHFA every year to reflect the current average home price in the United States. In 2021, the conforming loan limit was set at $548,250 for most areas in the country. However, that limit extends up to $822,375 in certain high-cost areas. Any loan amount above the conforming loan limit range qualifies as a jumbo mortgage. FHFA loan limits are set on a countywide basis, so you’ll want to check the maximum conforming loan limit map to determine the exact threshold for your location.

Are there minimum and maximum jumbo loan amounts?

The minimum loan amount for a jumbo mortgage is based on the conforming loan limit for your area.

For example, if you’re in Sullivan County, New York, which has a conforming loan limit of $548,250, then a minimum jumbo loan amount would begin at $548,251. However, if you live in Orange County, New York, then your minimum jumbo loan limit would be any amount over $726,525. A mortgage balance that falls within the conforming thresholds for that area’s loan limits would not require a jumbo loan.

The maximum amount for a jumbo loan will likely vary by lender, but how much you’ll qualify for typically depends on your overall financial situation.

Breaking down jumbo loan qualifications

Larger loans come with increased amounts of risk for both mortgage lenders and borrowers. To ensure you can afford to take on a jumbo mortgage, qualifying guidelines are stricter than those for a traditional conforming loan. While exact underwriting requirements may depend on the lender, here are some general guidelines and questions to consider when it comes to jumbo mortgages:

What are the jumbo loan minimum down payment requirements?

In the past, lenders have usually required a 20% down payment minimum for borrowers to be approved in a jumbo loan application. However, more flexible options may be available depending on the lender you choose..

At Better Mortgage, jumbo loans are available to borrowers with down payments of just 10%. But keep in mind that 10% can be quite a chunk of change given the higher price tag of the homes. For example, a 10% down payment on the minimum jumbo loan amount is nearly $55,000.

At Better Mortgage, getting pre-approved for a Jumbo Loan is just as quick and simple as it is with any other type of loan. Similar to the process for conforming loans, pre-approval for a Jumbo Loan starts with online pre-approval: you’ll be asked to provide basic information about your household income, debts, and assets, and Better will run a soft credit check which won’t impact your score. You can learn more about the specific product details and limits here.

What credit score do you need for a jumbo loan?

Mortgage providers usually expect good to excellent credit scores for jumbo loan approval. A consistent payment history will be especially important, as lenders want to ensure you have a longstanding record of paying your bills on time.

While some providers require a credit score of 720 or higher, Better Mortgage offers jumbo loans to those with credit scores of at least 700.

What is the jumbo loan DTI requirement?

Your debt-to-income ratio (DTI) is a measurement of your total monthly income and your recurring debt obligations. This ratio is a super important factor in determining loan eligibility; in fact, a high DTI is the top reason that loan applications get rejected.

Lenders use DTI to assess whether adding a mortgage payment is financially realistic for borrowers—in other words, do you have the ability to take on a mortgage given how much money you make and how much of that income is already apportioned to existing debts? DTI ratios as high as 50% may be acceptable for conforming loans, but jumbo loan borrowers are held to a stricter standard. Some lenders require a DTI ratio as low as 36% for jumbo borrowers. However, Better Mortgage allows for DTIs up to 43% for jumbo loans.

Other jumbo loan qualifications

Individual lenders may have additional requirements for underwriting jumbo loans. For instance, if the cost of the home exceeds a certain amount then a second appraisal might be conducted to verify that the property you’re purchasing is actually worth the loan amount. Some lenders may also want to ensure you have sufficient cash reserves in the bank before approving your application. Cash reserves are a measure of the amount of funds you’ll have available after you pay your down payment and closing costs. Some lenders require that you have enough cash to cover at least six months of mortgage payments, while others require up to a year’s worth.

Jumbo financing: Get started

If you’re looking for a home in a high-cost area or need to refinance a larger loan balance, then a jumbo loan could fit your needs.

At Better Mortgage, you can get pre-approved in as little as 3 minutes. Start the process today to find out if a jumbo loan is the mortgage option that makes sense for you.