Jumbo Loans - Trinity Mortgage

What is a Jumbo Loan?

A jumbo loan is one where the loan amount exceeds allowable conforming limits set by Fannie Mae and Freddie Mac. For most parts of the country, this limit for single family homes is $484,350 but in areas that are considered “high cost” where residential real estate is much higher than in most parts of the country, the conforming loan limit can be as high as $726,525. Any loan amount beyond this limit will fall into the jumbo category. Each year the Federal Housing Finance Agency reviews the national median home value and adjusts the conforming loan limit for the following year should there be a year-over-year increase.

Fannie Mae and Freddie Mac both issue guidelines that lenders can follow. When lenders do approve a loan meeting these guidelines the loan is eligible for resale in the secondary market, most usually directly to Fannie or Freddie. Selling loans in the secondary market helps maintain liquidity in the lending universe.

Nearly two out of every three residential mortgages made today are either Fannie or Freddie. The Jumbo market on the other hand, makes up closer to 10 percent of the market. The secondary market for jumbo loans is much smaller compared to conforming and government-backed residential home loans.

What are the Loan Requirements?

Jumbo loan guidelines can vary from one lender to the next but there are some general requirements that most jumbo lenders ask for.

Credit and credit scores need to be better compared to minimum credit scores for other types of loans. The credit score used is the FICO score. This score ranges from 300 to 850 and there are three reported scores, one each from the credit bureaus of TransUnion, Equifax and Experian. Of the three reported scores, lenders use the middle score (FICO) for qualifying purposes. Most jumbo loans ask for credit scores to be at least 700 although other programs require a minimum score of 720-740.

Down payments for these type of loans also require more compared to other programs. Most jumbo loans ask for a down payment of at least 20% of the sales price but borrowers can get slightly better terms with a down payment of 25% or more.

What are the Jumbo Loan Benefits?

Jumbo loans provide long term financing options for higher end homes. Other short term solutions that are higher than the prevailing conforming loan limits may be for only three to five years. A jumbo loan can have a term up to 30 years. The 30 year term is the most popular but shorter term loans are available.

What are the Loan Limits?

Jumbo loans also have their own classification as it relates to loan limits. Anything above the conforming loan limit is a jumbo but there is another category loosely referred to as “super jumbo.” This limit is a moving target based upon which lender is offering the program but most such loans are labeled if the loan amount is more than $5 million although other lenders categorize a super jumbo as anything above $2 million to $15 million. Super jumbo loans will ask for a larger down payment compared to a traditional jumbo along with higher rates.

What are the Loan Guidelines?

Different jumbo loan programs can have their own specific approval guidelines but there are some general requirements that most jumbo loans follow. As it relates to employment and income, borrowers will be asked to provide evidence of at least two years of employment history. This can be verified by providing copies of the last two years of W2 forms. For someone that is self-employed or otherwise receives more than 25% of their income from sources other than an employer, the last two years of federal income tax returns can be used to verify the two year employment guideline.

Income is documented by providing a full month’s worth of pay check stubs. For the self-employed borrower, income is calculated by averaging reported income on the tax returns along with a year-to-date amount to arrive at a monthly figure.

Bank statements are used to verify sufficient funds to close and the deposits should match up with the income reported on the loan application.

Jumbo loans can be used to finance a primary residence, an investment property or a vacation or second home.

How to Qualify for a Jumbo Loan

After a review of your initial application we will supply you with a list of documents needed in order to get the loan in process and to the underwriting department. It is the underwriting department that will make sure your completed loan package meets jumbo loan requirements.

You may also initiate qualification by speaking with your loan officer over the phone. You’ll be asked a few questions about income, credit and such and be given a general idea regarding how big of a jumbo loan you can qualify for. Or, if you have a property picked out, we can provide you with various financing options. When you’re ready to make an offer or you want to take it to the next step and get preapproved (recommended) we’ll provide you with your documentation checklist.

Most jumbo guidelines also ask that your debt-to-income ratios be at or below 45. This means your total monthly house payment plus taxes and insurance along with other monthly credit obligations such as a car payment and credit cards, should add up to no more than 45% of your gross monthly income. By meeting the minimum credit score requirement, providing there are sufficient funds to close on the transaction, your debt ratios are in line with jumbo guidelines you may qualify for a jumbo loan. Additionally, once your application is submitted and a property has been selected, be prepared to answer any questions the underwriter might have as your loan is being reviewed.

How to Apply for a Jumbo Loan

Applying for a jumbo loan is really a simple process. The most convenient way that our clients tell us to apply directly on our website. The online application form only takes a few minutes and once uploaded to our site we will download your application and submit it for an initial review. Don’t worry about getting all your numbers exactly correct, if there are any changes that need to be made during the processing of your loan, they can be made at any time.

Frequently Asked Questions About Jumbo Loans
What is a jumbo loan?
A jumbo loan is one where the loan amount exceeds local conforming or high balance limits. For 2019, anything above $484,350 for most parts of the country. In areas where the median home values are higher compared to most parts of the country, a jumbo loan can be anything above $726,525. These figures are for single family homes. Duplex, triplex and fourplex properties have higher limits.

What is the down payment requirement for a jumbo loan?
The minimum down payment for a jumbo loan is 20% of the sales price. Borrowers can obtain slightly better rates with a down payment of 25%. There are other jumbo loan structures where there are two loans instead of just one, where the first lien is at 20-25% of the sales price and a second lien making up the difference between the first lien balance and the amount of down payment.

What is the minimum credit score for a jumbo loan?
For most jumbo loan programs, the minimum credit score is 700-740. If there is more than one borrower on the application, the lender uses the lowest middle score for both borrowers.

What is a “middle score?”
When lenders request a credit report and credit scores, the request is made to each of the three main credit repositories of Equifax, Experian and TransUnion. The scores will be similar but rarely the same. The lender ignores the highest and lowest scores and uses the one in the middle.

Can I use a jumbo loan to buy a rental property?
Yes, you can use a jumbo loan to finance a residential rental property. Down payment and rate adjustments will be made.

What are the closing costs for a jumbo mortgage?
Closing costs for a jumbo mortgage are mostly the same as with any other type of conventional loan.

Can I make a lower down payment and use private mortgage insurance?
No, there are no private mortgage insurance, or PMI, policies available for jumbo loans.

How much higher are the rates for a jumbo mortgage?
Rates for a jumbo mortgage are typically about 0.25 to 0.375% higher than a conforming rate for the same program. This range however has varied in the past but this is a common variance.

Can I use rental income to help qualify for a jumbo mortgage?
If you’re currently receiving rental income from a property you own and have been receiving it for at least two years it can be considered when applying for a jumbo loan. If you want to buy a property and rent part of it out using a jumbo loan, the rent won’t be counted as income.

What are the appraisal requirements?
The appraisal requirements must meet industry standards and detail at least three similar properties that have sold within the past six to twelve months, supporting the subject property’s value. In some instances, especially on loan amounts much higher than the conforming limit, two separate appraisals will be required. The lender will use the lower of the two values in this instance.
