The Ins and Outs of a Jumbo Mortgage

Looking to purchase your dream home?  Or perhaps you live in a high priced market where home values have appreciated faster than conventional loan limits can keep up?  Jumbo mortgage financing offers opportunity for those looking to borrow beyond what FannieMae, FreddieMac, or HUD will offer or insure, and opens the door to financing for those seeking to buy a home or refinance in expensive markets.   There are also jumbo mortgage options that cater to high net worth individuals.

What is a Jumbo Mortgage?

Typically, a jumbo mortgage is any loan $1 or more above local conventional loan limits published by FHFA.  This means in some areas, jumbo mortgage loan amounts may be lower than in others, depending on what the local conventional loan limits are (For example, as of this post date, $548,250 is the conventional loan limit for most of the country, and in these areas, $548,251 would be the start of jumbo mortgage financing.  However, some areas considered ‘high cost’ offer conventional financing up to $822,375, so in these high cost markets jumbo financing would be available at a dollar amount of $822,376).
Jumbo mortgages are designed to meet the needs of borrowers looking to purchase or refinance in higher priced markets, or those financing higher end properties that aren’t in the service areas of Conventional or government (FHA, USDA) lending.

Who Offers Jumbo Mortgages?

Most lenders have some options for jumbo mortgages, but the quality and pricing of loan products, and the process itself, varies drastically.  For example, most large banks have private equity financing available for high net worth clients, and can offer jumbo mortgage options at extremely competitive rates.  The downside though, is that many banks offer these rates in an attempt to either “cross sell” other financial products to those high net worth individuals, or, they’ll force a borrower to move liquid assets to their bank in order to receive a low rate.  Independent mortgage banks (IMBs, such as Mason-McDuffie) also offer extremely competitive rates on jumbo mortgages, but since they’re not depositories, they don’t have any requirements to move funds around, and there’s no ‘cross selling’ of other products, making IMBs an ideal option for high end borrowers who don’t want to be forced to transferred funds or hounded about investment and other lending products outside of their mortgage.  IMBs can typically offer a more streamlined service level than larger banks as well, largely because 100% of their focus is on mortgages.

Can anyone qualify for a Jumbo Mortgage?

Yes, and no.  Jumbo mortgage lenders all have different requirements for qualifying, and the qualifying metrics are often either stricter than standard conventional mortgage guidelines.  The tradeoff for those lenders with looser qualifying metrics is often higher rates.  For this reason, whereas conventional and government loans, for the most part, see similar rates from lender to lender, in the world of jumbo home loans, rates can vary drastically depending on the lender and qualifying metrics.  After all, rates are largely driven by risk to the lender, and jumbo loans offer a higher level of risk because of the dollar amounts involved (If a lender loses $200K on a default, that’s a big hit, but pales in comparison to a default on a $1M+ loan).

Typically, on jumbo mortgage loans with more competitive terms, lenders will have more stringent debt to income ratio maximums – often around 40-43%, meaning a borrower’s total debt, including housing expenses and all other debts, cannot exceed 40-43% of their gross income.  Reserves are also a requirement that is common for jumbo mortgages.  Lenders will want to see a certain number of months in housing payments (PITI as it’s commonly referred, Principal, interest, taxes, and insurance) in reserve to show mortgage payments could continue to be made should income ever be disrupted.

Once it’s determined a borrower is qualified for a jumbo mortgage, though, the loan process is similar to most other loan types, with some intricacies depending on area and loan amount (for example, some lenders require 2 appraisals to be completed over a certain loan amount).

How to apply for a jumbo mortgage?

Applying for a jumbo mortgage is no different than applying for any other home loan.  Your MasonMac loan officer can complete an application with you in person, over the phone, or using their digital mortgage link where you can complete an application from a computer or your phone at your convenience.  Once an application is complete, your loan officer will look over your financial statements and determine which options you have available to you.  When seeking a jumbo mortgage, it’s important to disclose all of your assets and income, because more reserves or a lower debt to income ratio may open the door to more competitive loan options.