Jumbo loans are a specialized loan that allow you to exceed the limits on normal housing loans. Learn more about applying for a jumbo loan.
While it does not come up often, there are limits on how much you can borrow from a traditional loan. Each state has different limits on how much you can borrow at any given time. If you want to borrow beyond this limit, you must take out a jumbo loan. One of the situations where you need a jumbo loan is if you want to purchase expensive property. Jumbo loans are also known as non-conforming mortgages.
Getting a jumbo loan is much harder than a traditional home loan because you are borrowing such a large amount. There are also less protections available for jumbo loans. For example, lenders cannot get loans guaranteed by Fannie and Freddie Mae. The requirements vary depending on your lender, but most require at least a credit score of 700 to apply. Because there are fewer protections, jumbo loans are more likely to have additional stipulations or have higher interest rates compared to traditional loans.
Applying for a Jumbo Loan
The application process for a jumbo loan is almost identical to a traditional home loan. Both require you to submit financial information to your lender, including pay stubs, bank statements, tax returns and either your W-9 or W-2 forms. How far back you are required to go changes depending on the lender. Unlike with a traditional loan, you are typically required to submit more information, with most lenders wanting documents dating back at least two years. This gives your lender a much greater idea of your finances and helps assess whether you’ll be able to pay off the large loan.
In addition to needing a high credit score, most lenders require you to either be employed at a high paying job, or have enough in asset value to get approved. There is no specific dollar amount, with lenders setting their requirements based on how much you want to borrow and your financial history. The lower your debt-to-income ratio, the easier it is to get approved for a jumbo loan.
Benefits of a Jumbo Loan
The biggest benefit of a jumbo loan is how much you can borrow. Because there are no limits on the loan, you can purchase expensive property without having to apply for multiple loans, which is much more complicated and has a greater impact on your credit score. Jumbo mortgages also have lower down payments than a traditional house loan. This is because of how much larger the jumbo loan is in comparison, so even with a smaller down payment percentage, you are still paying a significant amount. Traditional house loans require a 20 percent down payment, while a jumbo loan down payment is on average between 5 and 10 percent.
Jumbo loans have competitive interest rates. While the base interest rates are higher than traditional housing loans, competitive interest rates give you a greater chance of finding reasonable interest rates for your jumbo loan. As of writing, interest rates are especially good for buyers, with some borrowers even getting lower interest rates than a traditional housing loan.
Jumbo loans are also more flexible than traditional housing loans. You can opt for a 30-year fixed mortgage, as with a housing loan, or you can get an adjustable-rate mortgage instead. This gives you the opportunity to pay off your mortgage sooner without having to commit to a difficult plan. It also lets you adjust your budget in case an emergency expense comes up and disrupts your plan.
Disadvantages of a Jumbo Loan
The biggest challenge with getting a jumbo loan is the strict income requirements. Even with a 700 or higher credit score, you are not guaranteed to get a jumbo loan. One of the ways you can improve your odds of getting a jumbo loan is with a larger down payment, but this cancels one of the strengths of a jumbo loan.
Along with the stricter requirements, you may be asked to put aside income for your first mortgage payments. Some lenders require you to put cash away on reserve for the first year of mortgage payments. This reserved cash is used if you are unable to make your standard payment. This can take even longer to budget for. There are also less jumbo loan providers than traditional housing loans. This makes it harder to negotiate, since your lender knows you have fewer available options.
Chase Home Lending
Chase is one of the best choices for jumbo loans because they have over 5,000 branches throughout the United States, making them a viable choice no matter where you live. As a large bank, Chase can provide higher than average loans, up to $3 million. Chase has options for both fixed and adjustable rates as well as interest only loans.
Rocket Mortgage
Getting a jumbo loan is normally a long process because you are required to submit so much extra financial information. Rocket Mortgage simplifies the process with an online application. Without speaking to a representative, you can find out whether you qualify, the maximum you can borrow and what additional information Rocket needs.
Ally Bank
Ally is an entirely online lender. The application process is user-friendly, laying out all the financial information you must submit and what other assistance is available to you. The application is more involved than other lenders, requiring you to submit information about the property as well. However, this allows Ally to give you more accurate numbers about your loan. Ally is also known for requiring lower down payments. Finally, if you have an account with Ally, you can get a small discount on your closing costs.
