Understanding Jumbo Loan Criteria: How to Get Your Dream Home

jumbo loan criteria

Looking for a jumbo loan to purchase your dream property? Here’s everything you need to know about jumbo loan criteria.

Whether you are eyeing a luxury estate, or a unique property that commands a higher tag, jumbo loans are among the best pathways you can explore in order to secure the financing you need for your dream home.

Designed for high-income earners, investors, and luxury property buyers, jumbo loans often have more stringent requirements compared with conventional loans, which means that they can be more challenging to obtain.

In this guide, we will dive deeper into jumbo loan criteria, what are some of the key things that you need to know about it, and how you can meet it. So, let’s jump right into it:

What Are Jumbo Loans?

Jumbo loans are mortgages that exceed the conforming loan limits set by the Federal Housing Finance Agency, designed to finance luxury properties and high-value homes. They require stricter criteria, including higher credit scores, larger down payments, and comprehensive financial documentation.

Conforming loan limits refer to the maximum loan amount that you can get as established by Fannie Mae and Freddie Mac, the two government-sponsored enterprises (GSEs) that back most mortgages in the USA. 

As of 2024, the baseline limit for one-unit properties is $766,550, up from $726,200 in 2023. However, in areas where 115% of the local median home value exceeds the baseline conforming limit – such as Southern California, South Florida and the greater New York metropolitan area – this limit can be higher

Because jumbo loans exceed these baseline conforming loan limits by default, they are considered non-conforming loans, and cannot be sold to the GSEs.

Who Can Apply For a Jumbo Loan?

While everyone is allowed to apply for a jumbo loan, not everyone is able to meet the strict jumbo loan criteria in order to get it. This type of loans cater to a specific segment of the housing market, and the most common borrowers include:

  • Investors – in regions where real estate prices surpass the national average – such as San Francisco, New York City, Los Angeles, Florida and Seattle – investors have to consider jumbo loans to finance their property purchases.
  • Luxury property buyers – if you are looking to purchase a luxury property, you may need to apply for a jumbo loan in order to secure the necessary financing, which exceeds conforming loan limits.
  • High-income earners – individuals with a higher income and a good financial stability that allows them to afford larger monthly mortgage payments often seek jumbo loans to finance their dream home.

While this is the most common target audience for jumbo loans, you may also need to get one if you are simply looking to purchase a second home or vacation property that surpasses conventional loan limits.

In another situation, if your property has appreciated significantly and you wish to refinance your mortgage, you can also apply for a jumbo loan if the new loan amount exceeds the limits. 

Regardless of your case, there is one thing that applies to everyone – the jumbo loan criteria. And this is exactly what we are going to talk about next: 

Jumbo Loan Criteria: 5 Key Factors

So, what is the main jumbo loan criteria that borrowers need to meet in order to qualify for a jumbo loan? 

1. Credit score of 700 or higher

One of the most important jumbo loan criteria that lenders look at when assessing a jumbo loan application is the credit score

Be prepared to show a credit score of at least 700 or in some cases, 720 and above. Lending a larger amount of money is associated with higher risk for lenders, which means that they will have higher credit score requirements to reduce potential risk of defaulting.

But how does the required credit score for jumbo loans compare to other types of loans? Let’s take a look:

  • Jumbo loans – 700 or higher
  • Conventional loans – 620 or higher
  • FHA loans – 500 or higher
  • VA Loans – 620 or higher
  • USDA Loans – 640 or higher

As we can see, lenders have stricter credit score requirements for jumbo loans compared to other loans, mainly because they are assuming a higher risk when lending money for high-value properties.

In addition, unlike FHA, VA, or USDA loans, jumbo loans are not backed by the government – this lack of guarantee means that lenders bear all the risk of the loan. 

2. Debt-to-Income ratio should be lower than 43%

Another important jumbo loan criteria that borrowers will have to keep in mind is Debt-to-Income ratio (DTI), which measures the amount of income a borrower generates in order to service a debt. 

In other words, how much of your income are you spending on debt compared to how much you are generating?

Just like credit score and other jumbo loan criteria, lenders require a lower DTI compared to most other types of loans – 43%. However, this percentage can go even lower depending on your overall financial situation and the loan amount. 

Here’s how it compares to conventional or government-backed loans:

  • Jumbo loans – 43% or lower 
  • Conventional loans – 45% – 50%
  • FHA loans – up to 43% for the front-end ratio, and up to 56% for the back-end ratio
  • VA Loans – no strict DTI ratio requirements
  • USDA Loans – 41% or lower

While the percentage may vary depending on the lender – for example, Jet Direct Mortgage requires less than 50%, we highly recommend you to maintain your Debt-to-Income ratio as low as possible for a higher likelihood for approval, as well as better terms and rates.

It shows that you have a strong financial foundation, and you are less likely to default on your loan – effectively mitigating the lender’s risk when lending you a large sum of money. 

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3. Larger down payments

Being able to provide a larger down payment (compared with conventional loans) is among the most important jumbo loan criteria that you will need to meet if you are applying for a jumbo loan.

Since jumbo loans exceed the limits set for conforming loans, they represent a higher risk for the lender, and a more substantial down payment is one way to mitigate that. In conventional loans, the down payment is only 20%, but it can go higher for jumbo loans – although it will vary according to the lender.

4. Cash reserves

Speaking of jumbo loan criteria, another factor we can’t forget to mention are cash reserves, which is not the same as a down payment. 

Cash reserves are liquid or easily liquidated assets that you have after closing on a home, and they reflect your ability to continue making mortgage payments in case of financial distress or unexpected life events.

Depending on your situation, the amount you are asking for and your credit profile, lenders may ask you for enough reserves to cover 6-12 months of mortgage payments (including principal, taxes, insurance and interest).

Some examples of cash reserves include:

  • Savings accounts
  • Checking accounts
  • Investment accounts
  • Retirement accounts
  • Other liquid assets

Be prepared to show proof for the existence and accessibility of cash reserves – from bank statements and investment account statements to other relevant financial documents. They will go through a thorough verification process to ensure that the funds are not obligated elsewhere.

5. Documentation 

Just like other types of loans, you will have to prepare all the required documentation in order to meet the jumbo loan criteria set by lenders. Keep in mind that it is likely to be more extensive than conventional or government-backed loans due to the size of the loan. 

The exact documentation will vary by lender, but it generally includes:

Proof of income

You will have to provide proof of income to ensure lenders that you can make your monthly mortgage payments. This typically includes W-2 statements (for the last 2 years), pay stubs (most recent 30 days), as well as tax returns for the last 2 years.

If you are self-employed or work as an independent contractor, you may also have to present a 1099 form

Proof of assets

In addition to proof of income, you will also have to provide proof of assets as a part of the jumbo loan criteria you’ll need to meet. 

This can include bank statements to verify your savings, investment account statements, as well as gift letters in case your down payment is coming as a gift. 

Debt information

As we mentioned earlier, your current debt plays a huge role in determining whether you meet the jumbo loan requirements. You will have to provide documentation to show all your outstanding debts, whether it’s student loans, credit card debt, or car loans.

You will also have to provide information on current obligations so that lenders can calculate your Debt-to-Income ratio.

Employment verification

Employment verification also plays a role when it comes to jumbo loan criteria. Some lenders may ask for a verification of employment form to be filled out by your employer, or a direct verification through a phone call. 

Property information 

Be prepared with all the relevant documentation regarding the property that you are looking to purchase, including a detailed appraisal report to determine its value. You may also have to provide title information to ensure that the property is legally available for sale.

Additional documentation

Some lenders may require additional documentation, for example if you are a self-employed individual, or you have a high net worth. This can include:

  • More detailed financial statements
  • Proof of additional income, such as rental income or dividends
  • Business tax returns
  • Business license
  • Business bank statements
  • Profit and loss statements
  • Proof of non-liquid assets
  • Insurance information
  • Legal documentation

About Jet Direct Mortgage

If you are ready to buy the home of your dreams, Jet Direct Mortgage can help you find the perfect loan fit for your needs and goals. Our mission is to set a high standard in the mortgage industry through unmatched customer service, from the application process to the post-closing stage.

Our team of experienced professionals will guide you through the home loan process step by step, so you feel confident in your knowledge and make a well-informed decision on the best mortgage for you. 

Are you ready to get started? Apply now for your jumbo loan!

FAQ

Are the interest rates higher for jumbo loans compared to conventional loans?

Historically, jumbo loans carried higher interest rates than conventional loans because of the higher risk associated with lending larger amounts of money. However, in recent years, the interest rate gap between jumbo and conventional loans has decreased significantly. 

Now, depending on the borrower’s creditworthiness and market conditions, the interest rates for jumbo loans can be very competitive, sometimes even lower than those for conventional loans.

What is the maximum loan amount I can borrow with a jumbo loan?

The maximum loan amount for a jumbo loan varies by lender and location, typically starting just above the conforming loan limits set by Fannie Mae and Freddie Mac. 

In high-cost areas, borrowers can secure jumbo loans for amounts in the millions, depending on the lender’s criteria and the borrower’s financial situation.

How much cash reserve do I need to qualify for a jumbo loan?

For a jumbo loan, lenders usually require cash reserves sufficient to cover 6-12 months of mortgage payments. The exact amount varies based on the loan size, borrower’s credit profile, and lender requirements, emphasizing the need for significant liquidity.

Can I get a jumbo loan with a co-borrower?

Yes, you can obtain a jumbo loan with a co-borrower. Having a co-borrower can help meet the stringent income, credit score, and cash reserve requirements of jumbo loans by combining financial resources. 

Lenders will evaluate the creditworthiness and financial stability of both borrowers to determine eligibility and loan terms.

How does the property appraisal process work for jumbo loans?

The appraisal process for jumbo loans is more rigorous than for conventional loans, often requiring multiple appraisals. Appraisers assess the property’s value and condition to ensure it supports the loan amount, considering unique features and the local market.