Does a jumbo house need a jumbo down payment?
Got your eye on a bigger, better, more expensive home? You’re likely going to need a bigger mortgage.
That’s where a jumbo loan can come in handy.
Jumbo loans let you buy more than conventional loan limits allow — which is currently $ in most areas.
And thanks to new mortgage programs, you don’t need 20% or 30% down to get a jumbo loan anymore.
In fact, some lenders will let you spend upwards of $2 million, with 10% down and no mortgage insurance.
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What is a jumbo loan?
A jumbo mortgage is a “non-conforming loan,” meaning it surpasses the conforming loan limits set in place by Fannie Mae and Freddie Mac.
Because jumbo loans are considered non-conforming, they don’t have to meet underwriting standards set by Fannie and Freddie. As a result, jumbo loan lenders can set their own requirements for borrowers.
That means minimum credit scores, minimum down payments, maximum debt-to-income ratio (DTI), and other criteria can vary a lot by lender.
- You’ll likely need a credit score beginning at 700. While FICO score requirements will vary by lender, some may require 20% down and a 740 credit score, and others may allow down payments starting at 5%, or scores as low as 680 (though you’ll likely pay higher interest rates with scores below 700)
- Down payment requirements range from 5% to 20%. We explore jumbo loan down payments in more detail below, but since mortgage lenders have more leeway to set their own underwriting standards, you’ll see a variety of minimums
- There are no government restrictions on property types. You can finance all types of properties including primary residences, vacation homes, and investment properties.
- Expect to need a debt-to-income ratio around 38% to 43%. Again, there are few hard rules for jumbos, but having a low DTI is crucial for qualifying for any type of loan — jumbo, conventional mortgages or otherwise. However, home buyers with a good credit score and a big down payment, you may find a lender willing to underwrite a jumbo loan with a higher DTI
- You may need cash reserves to qualify. Some lenders may require up to a years’ worth of cash reserves to qualify. That means you’d need 12 mortgage payments worth of savings in your bank account after paying the down payment and closing costs
Loan requirements aren’t the only thing that differs by lender; interest rates and fees can vary by a large amount, too. So find a lender that will approve you for a jumbo mortgage loan and a great deal.
How much is the down payment on a jumbo loan?
In the past, jumbo loans typically required 20% or even 30% down.
Imagine you’re buying a home worth $750,000. A 20% down payment would put you at $150,000 out of pocket — and that’s before closing costs are added in.
Today’s homeowners have more loan options, though.
Jumbo loans are now available from some mortgage lenders with as little as 5% or 10% down. Others may require 15% to 20%.
It all depends on the investor you work with. As we said before, lenders have free rein to set their own rules for this type of mortgage.
Low-down-payment jumbo loans can be especially helpful for first-time home buyers who live in high-priced markets but haven’t had a lot of time to build up their savings.
How do I get a jumbo loan with 5% down?
Simply by shopping around. Check in with a few different mortgage lenders and ask about their minimum down payment for a jumbo loan.
Ask about credit score and income requirements, too, to see whether you’re likely to qualify.
“You’ll likely have to look beyond your local bank,” says Eric Jeanette, president of Dream Home Financing and FHA Lenders. “There are many online lenders who have creative loan programs that local banks simply do not offer.”
Another way to find a low down payment jumbo loan is to look to wholesale mortgage brokers.
“Wholesale mortgage brokers have relationships with many lenders who can offer flexible terms and guidelines. They can also yield the most cost-effective mortgage solutions for the jumbo loan market,” says David Yi, president at Providence Mortgage.
When you find a lender offering low-down-payment jumbo loans, you can fill out a pre-approval application to verify your eligibility.
Then, once you have a signed purchase agreement on the home, your lender will be able to issue a final loan approval confirming the interest rate, loan terms, and closing costs on your new jumbo loan.
One thing to note: most lenders are not very forthcoming with information about their jumbo loans online. So don’t expect to find everything you need on a lender’s website.
Instead, get in touch directly with a loan officer or mortgage broker who can fill you in on the details.
What’s considered a jumbo loan in 2022?
Lysa Catlin is a senior loan consultant for Caliber Home Loans, Inc. She says the Federal Housing Finance Agency (FHFA) announces new conforming loan limits each year, which dictate the threshold for a conforming loan vs. a jumbo loan.
“The conforming limit is now $. Anything above that amount is considered a jumbo mortgage,” Catlin explains.
Note that there are some high-cost areas where conforming loan limits are a little more generous. These include states such as Hawaii and Alaska and cities like New York City and Los Angeles where the median purchase price of a home tend to be far higher than the national average.
In some real estate markets, the limit for a single-family home goes as high as $.
- Most markets: Loan amounts greater than $ are considered jumbo loans
- High-cost markets: Loan amounts greater than $ are considered jumbo loans
Keep in mind that the upper limit for conforming loans is the lower limit for jumbo loans. But jumbo mortgage loans also have caps, which can vary by lender.
“These high balance conforming loans areas tend to have the worst rates,” says Jon Meyer, The Mortgage Reports loan expert and licensed MLO. “So even if you do qualify for conventional, you may want to inquire about a jumbo loan in these areas if you can qualify within jumbo guidelines.”
Some mortgage companies will go up to $2 or $3 million on a jumbo loan. Others will lend as much as $10 to $15 million and beyond.
Of course, you have to be able to afford the monthly mortgage payments on a multi-million-dollar loan to qualify. And that’s why lenders have such strict underwriting criteria for jumbo loans.
Do jumbo loans require mortgage insurance?
Making a down payment of less than 20% normally means you have to pay for private mortgage insurance (PMI). That’s true for most jumbo loans as well as conforming mortgages.
“PMI is an insurance policy that protects the lender from losses in the event that you can’t pay your debt or file for bankruptcy. PMI exists for loans with a loan-to-value greater than 80% due to the increased risk,” says Jeanette
PMI can be pretty expensive — especially for jumbo loans.
“For example, the monthly PMI payment on a $2 million jumbo loan at a 90% loan-to-value ratio and a credit score in the mid-600s would be $1,083,” Jeanette adds.
But 20% down isn’t always required. In fact, some lenders today are offering special jumbo loan products that require a much smaller down payment and no PMI attached. “Some investors will not require PMI with 10% down or more,” adds Meyer.
Caliber Home Loans is one such lender.
“We offer jumbo mortgages up to $2 million with only 5% down payment required and no PMI. We also offer a jumbo loan up to $3 million with 10% down needed and no PMI,” says Catlin.
Be aware, you’ll likely pay a higher interest rate if you’re not paying for PMI.
“Since you’re putting less than 20% down and not paying mortgage insurance, rates could be higher. That’s because your profile poses more risk due to less collateral,” explains Yi.
Jumbo loan rates today
You might think jumbo loan rates would be much higher than conforming mortgage rates. But in fact, they’re often similarly priced.
Today’s mortgage rates for a jumbo home purchase or refinance are low, just like all interest rates.
Keep in mind that jumbo loan rates, like all mortgage rates, depend on many factors. “These include loan type, loan amount, down payment, credit score, debt-to-income ratio, and reserves left after closing,” Catlin says.
Jumbo mortgage rates are often roughly half a percent higher than for a comparable, non-jumbo mortgage.
In general, Jeanette advises that jumbo mortgage rates are roughly a half percent higher than conventional rates.
“That’s true if the borrower has good credit and can fully document his or her income,” he explains. “But when you start to add in other factors, like poor credit, alternative income documentation, and bankruptcies, the rates will be higher.”
Jumbo loan options include a fixed-rate mortgage or adjustable-rate mortgage.
An adjustable rate may help you save money on your mortgage payments initially, but it could be very risky to have an increasing jumbo loan rate and payment later on. So these loans generally aren’t recommended unless you plan to refinance or move before the initial fixed-rate period ends.
Is there a jumbo VA loan?
While the VA doesn’t offer a specific jumbo loan product, unlike other government-backed loans, the VA loan does not have loan limits.
So, yes, eligible borrowers may be able to qualify for jumbo loan amounts through the Department of Veterans Affairs with zero down payment. Still, while the VA may not have loan limits, mortgage lenders will.
Yet, you’ll need significant income, good credit scores, a sizeable down payment, and a low DTI ratio to qualify. Read more about qualifying for a jumbo VA loan.
Jumbo loan refinancing
If rates fall after you take out a jumbo loan, you may be able to refinance into a lower interest rate and monthly payment. Qualifying for a jumbo loan refinance can be tricky, though.
Just like home buying with a jumbo loan, there will be stricter scrutiny on your credit, income, and financial history. And there may be limits on cash-out refinancing.
But if you qualified for a jumbo home purchase, there’s a good chance you’ll be eligible to refinance. Check with a few mortgage lenders to find the best loan option and interest rate for you.
Good candidates for a jumbo loan
If your new home’s purchase price exceeds conforming loan limits in your area, a jumbo loan may be your best option.
Just keep in mind that to qualify and afford the monthly payments on a jumbo loan, you’ll need a healthy income. That’s true even if you’re not making a big down payment.
“We only recommend people take out mortgages they are comfortable making the [monthly payment] on,” says Catlin.
“We often see people put less money down initially and then pay the mortgage balance down in chunks later. That can be especially smart when they have a home to sell, expect stock to vest, or will be inheriting money.”
Also, says Jeanette, “say interest rates are low and you can invest the down payment money in something else that will earn a higher rate of return. In this case, pursuing a low down payment jumbo loan can make sense.”
Your next steps
If you have your sights set on a big house with all modern amenities, you might need a jumbo loan to finance it.
And if you live in an expensive area — think New York City, Los Angeles, or Seattle — you might need a jumbo loan regardless of home size.
The good news is, it’s easier to get a jumbo loan now than it has been since the mortgage crisis. You might be able to buy a home worth half a million or more with just 5% down and no mortgage insurance.
The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.