Aside from those distinctions, jumbo loans aren’t much different from traditional mortgages. Payment schedules and other details are generally the same. Borrowers can get fixed- or adjustable-rate jumbo mortgages with various term options.
While there were reports of lenders pulling back from jumbo mortgages early in the pandemic, the market for jumbo loans is mostly back to normal — and as of January 2022, rates on these types of loans are becoming even more favorable.
- ◉ Larger Income Requirements.
You’ll typically need a low-debt-to-income (DTI) ratio, which is the percentage of your monthly income that goes to debt payments. If your income is on the lower end and you have a hefty sum of outstanding debts, you might not qualify for a jumbo loan unless your credit score is excellent or you have a sizable amount of reserves.
- ◉ High Credit Score
The jumbo loan credit score requirement is usually higher than what you’ll find with a conforming loan. “The average is around 740, although I have seen some as low as 660,” says Robert Cohan, president of Carlyle Financial based in San Francisco.
- ◉ Heftier Reserves
The down payment on a jumbo loan is typically 10 percent to 20 percent (and sometimes more). “Anything lower than a 10 percent down payment and you’re probably going to pay for it in higher rates,” Cohan says. Be prepared to also show enough reserves, or liquid assets, to cover between six and 12 months’ worth of mortgage payments.
Jumbo lenders typically impose stricter underwriting guidelines than those extending traditional mortgages. Because the loans aren’t backed by Fannie or Freddie, jumbo mortgages pose more risk to the lender. On the flip side, lenders have more to gain — the dollar value of the loan is higher, and the lender gains an opportunity to sell additional services to these more affluent borrowers.