Who needs a jumbo mortgage?

It seems obvious that a jumbo mortgage is a mortgage that is larger than average. The word jumbo is there in the name, right? But if you’re curious how much larger a mortgage needs to be to qualify as a jumbo loan, who sets that standard, and how jumbo mortgages are different in other ways, read on.

What is a jumbo mortgage?

Any mortgage that is for more than $726,200 – or for higher amounts in certain high-cost areas – is considered a jumbo loan. This seemingly random number might make you wonder if someone on our mortgage team has a quirky sense of humor, but the cutoff for jumbo mortgages is actually set by the Federal Housing Finance Agency (FHFA).

Each year, the agency announces the maximum loan amount above which Fannie Mae and Freddie Mac won’t purchase or guarantee mortgages. Mortgages below the FHFA amount are called conforming loans because they conform to Fannie/Freddie standards, and mortgages above that amount are considered to be jumbo loans.

How are jumbo mortgages different?

As explained above, the main factor making a home loan qualify as a jumbo mortgage is the amount of the loan, but the amount isn’t the only difference between jumbo mortgages and conforming mortgages. Because jumbo mortgages finance high-value homes and luxury properties, there may also be differences in costs, terms, credit requirements and down payments.

1. Many banks charge more for jumbo mortgages.

Many mortgage lenders charge a premium interest rate for jumbo mortgages, with jumbo loans charging an annual percentage rate that ranges from one-half to two percentage point higher than their smaller, conforming loans.

Alliant is among the minority of mortgage lenders who don’t bump up our rates for jumbo loans. You can check out our current rates for both conforming and jumbo loans on our website’s mortgage page.

2. Some lenders only offer ARMs for jumbo loans.

Alliant now offers both adjustable-rate mortgages and fixed-rate mortgages for jumbo loans. In the past, we were like a lot of other mortgage lenders who offered fixed and ARM loans for conforming loans, but only ARM loans for jumbo. If you’re in the market for a jumbo mortgage, be sure to confirm that both loan types are offered by the lender you’re considering.

“As real-estate values recovered from the housing crisis, Alliant recognized that more and more of our members were in need of larger mortgages, and they wanted the flexibility and rate stability that comes with a fixed mortgage, so we’ve added them to our portfolio,” said Mark O’Dell, Alliant’s manager of residential loans.

3. There are tougher credit standards for jumbo mortgages.

Because jumbo mortgages are for higher amounts, you need to have very good credit to qualify.

• Solid credit history. This doesn’t mean that you need a FICO of 800 to buy your gorgeous dream home, but it does mean that you have to have a credit score that is higher than average.
• Solid income and low debt-to-income ratio (DTI). To qualify for a jumbo mortgage, you’ll need a higher than average household income and a low DTI.
  Pro-tip for new doctors: Alliant offers mortgages up to $850,000 to qualifying new medical and dental professionals, and we take into account your future earnings potential even if you have large debts due to your loans from medical or dental school. If you’re a new doctor or a recent med-school grad who has a job lined up, call us at  800-365-7003 to learn more.

To know if you can qualify for a jumbo loan, your best bet is to prequalify for your mortgage before you start looking at homes.

4. Proportionately larger down payments

Because down-payment thresholds are set based on a percentage of the amount you’re borrowing, the higher amount of a jumbo mortgage means that a 5% or 10% or 20% down payment on a million dollar home is higher than the same percentage down on a quarter million dollar home. That much is fairly obvious, right?

However, low down-payment options are available for jumbo loans, so don’t worry that you can’t buy your dream house until you’ve saved 20% of your purchase price. For example, the Alliant Advantage Mortgage (AAM) program offers low down-payment loans of up to one million dollars (with no private mortgage insurance), for borrowers with very good credit. Learn more about AAM by visiting our website, viewing our AAM video or calling us at 800-365-7003.

Areas with higher jumbo mortgages

High value homes have mostly recovered their value after the housing crisis and Great Recession, with more homes than ever surpassing the FHA limit for conforming loans. That’s why the FHFA has set higher conforming loan thresholds for 220 of the nation’s 3,143 counties. There, a higher-valued home can still qualify as a conforming loan, though the cutoffs vary, with several tiers set by the FHFA.

In some areas of the country – mostly large coastal cities and their surrounding suburbs – it is even difficult to find housing that falls below conforming limits. Those areas include counties surrounding Denver, Los Angeles, San Franscisco, New York, Washington DC, and the entire states of Alaska and Hawaii. A quick Google search or a call to your local real estate agent or your mortgage lender can tell you if your dream home is in a higher-threshold market or not.

Now that you’re armed with an understanding of what a jumbo mortgage is and whether your home might fall into that category, you’re ready to go out and find the house of your dreams. Happy home shopping!