Jumbo Loans Explained

A jumbo loan is a mortgage above the conforming loan limit set for your county. Because these loans can't be sold to Fannie Mae or Freddie Mac, each lender sets its own guidelines. In many parts of California, especially coastal Orange County, Los Angeles and the Bay Area, jumbo financing is common.

How conforming limits work

The Federal Housing Finance Agency sets conforming loan limits each year. High-cost counties have higher limits, sometimes called "high-balance" conforming loans. Anything above your county's limit is generally considered jumbo.

Limits change annually and vary by county, so ask me for the current figure.

What lenders typically look for

Since each lender sets its own rules, requirements vary more than with conventional or FHA loans. Generally, jumbo lenders look for:

• Stronger credit scores than many conforming programs
• Larger down payments, with requirements varying by loan size and lender
• Lower debt-to-income ratios in many cases
• Reserves: savings left after closing, sometimes several months to a year or more of payments
• Thorough documentation of income and assets
• In some cases, two appraisals for larger loan amounts

Advantages

Finance higher-priced homes with one loan

A jumbo loan lets you finance the full amount you need without combining a first and second mortgage.

Competitive pricing is possible

Jumbo rates aren't automatically higher than conforming. Depending on the market and lender, they can be similar or even lower at times. Each lender prices differently.

Variety

Jumbo loans come in fixed-rate and adjustable-rate options, plus interest-only and other structures from some lenders.

Often no mortgage insurance

Many jumbo loans don't use private mortgage insurance, even with less than 20% down, though pricing reflects the risk.

Disadvantages

• Stricter qualification and more documentation
• Larger cash requirements for down payment and reserves
• Guidelines vary widely, so a file that doesn't fit one lender may fit another
• Appraisals can be more scrutinized for unique or high-value properties

Why a broker can help with jumbo loans

This is an area where shopping across lenders can matter. One lender might be strict about self-employment income, another about reserves, another about property type. As an independent broker, I can compare jumbo options from multiple wholesale lenders to look for the one that fits your profile. That doesn't guarantee approval or a particular rate, but it widens the field.

Alternatives to consider

• High-balance conforming: if your loan amount is just above the baseline limit but below your county's high-cost limit, you may not need jumbo at all.
• First and second mortgage combination: a conforming first mortgage plus a second mortgage or HELOC. This can sometimes reduce the cash needed, with its own trade-offs.
• Larger down payment: bringing the loan amount down into conforming range.

An example

These numbers are for illustration only. A buyer is purchasing a $1.6 million home with 20% down, for a $1.28 million loan. If that's above the county's conforming limit, it's a jumbo loan. One lender requires 12 months of reserves; another requires 6. The buyer's choice of lender may depend as much on those guidelines as on rate.

Questions?

If you're shopping in a higher price range, let's look at what different lenders may require before you write an offer. Read my jumbo loans overview, contact me, or start your pre-approval.