The Truth about Jumbo Loans

Can you qualify for a so-called “jumbo” loan? If so, what do you need to know about the special characteristics of these modern financial instruments? As you look for homes, keep in mind that the rates on jumbos vary quite a bit from lender to lender, so make sure you shop around. Bankrate offers a good outline of what jumbo loans are and how they work. Here are the highlights:

  • Jumbo loans take their name from a relatively new word in the English language which means “extremely large in comparison to others of its kind.” The term first came into the lexicon in the 1860s when the world’s most famous circus elephant came to America (that’s Jumbo himself in the above photo). After that, people used the word as a common adjective for really big things, in this case mortgage loans.
  • Today, jumbo loans merely refer to any mortgage loan that is above the federal “conforming limits.” The amount varies by region, but in San Diego County that amount is currently $562,359.
  • Since the loans are large, and they’re not within Freddie Mac or Fannie Mae parameters, lenders tend to have stricter guidelines for jumbos. Typically, borrowers need to put 20 percent down, fully document their income, and accept an adjustable-rate loan (rather than a fixed-rate one). In addition, your mortgage payment with a jumbo should not exceed 38 percent of your pre-tax income.
  • Unlike conforming loans, jumbo rates vary quite a bit. That’s why most financial professionals recommend that you shop around. With the amount of money involved, a tiny difference in interest rates on a jumbo could mean a difference in thousands of dollars you’ll eventually shell out over the loan term.
  • Right now, jumbo rates are quite favorable for those who can qualify.
  • Expect to put at least 20 percent down on a jumbo, with an upper limit somewhere around the 30 percent mark.
  • Be ready to completely document at least two years of your income history if you want a jumbo loan. That varies from lender to lender, but usually includes tax returns and bank statements.
  • You’ll need a good credit score to qualify for a jumbo. Think 720 or better, though there is a bit of wiggle room here depending on your income, income history and the size of the loan you are seeking.

If you plan on shopping for a jumbo loan, do your homework. The paperwork and qualifying requirements are more involved than with traditional loans, which is to be expected. But, if you have the qualifications and all your documents are in order, there is certainly no reason to be reluctant about getting a jumbo mortgage loan. Good luck!



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