Loans larger than the limits set by Fannie Mae and Freddie Mac are called jumbo loans. Because jumbo loans are not funded by government-sponsored entities, they usually carry a higher interest rate and some additional underwriting requirements. In most areas of the country, the 2020 conventional conforming loan limit is $510,400; however, the limit is $741,750 in higher cost areas. If your purchase or refinance balance is above this limit, a good strategy to lower your overall interest payments is to use a combination of a first and second mortgage. This type of loan structure is referred to as an 80/10/10, 80/15/5 or 80/20, depending on the relative size of the first mortgage, the second mortgage and the buyer’s equity in comparison to the total amount of indebtedness plus the borrower’s equity. However, every situation is different, and we can help you evaluate if this option is right for you.
If you are able to make more than a 20% down payment, a jumbo loan could offer a more competitive interest rate, along with the opportunity to avoid PMI and a floating second loan. When purchasing a home in the Greater Puget Sound area in particular, it is ideal to work with a lender who is an expert with jumbo loans and can help you identify the most ideal loan scenario for your particular scenario.
Jumbo Loan Benefits & Eligibility Requirements
- A minimum credit score of 700
- A history of diverse, aged trade lines (e.g., credit cards and car loans)
- A minimum of 10% down
- 6 months of payments in reserves
- Allows 10% down up to $1.5M loan amount, 15% down up to $3M loan amount – without PMI
- Jumbo loan interest rates can be lower than a conventional
Jumbo Loan FAQs
Can your reserves include retirement savings?
Yes. However, any retirement savings would typically be depreciated at 40%, so if you have $100k in your retirement account, most jumbo loan programs will only accredit it as $60k to account for the penalties you would incur if you withdrew that money tomorrow.
Why should I work with a loan officer who specializes in Jumbo Loans? Is it really that different?
Jumbo loans are the number one highest denied loan type in the industry, so yes, we highly recommend working with an expert on these loan types to make sure you are locking with the right program and every box is appropriately checked along the way.
Why would someone choose to avoid a jumbo with an 80/10/10 or 80/20?
Typically, someone would choose to avoid a jumbo loan only if they don’t qualify or because they only have savings to account for 10% down, which might put them at a less competitive interest rate than a conventional.
Are Jumbo Loans harder to qualify for?
They aren’t – except that they require reservation in savings and three aged, active lines of credit (often referred to as trade lines).
Why get my Jumbo Loan with Fairway?
Fairway will fully underwrite and approve your jumbo loan before you make an offer – something other loan companies typically will not do with a jumbo loan, frankly, because it is a lot of work on the end of the mortgage company. But we want your loan to run smooth, and close quick so you can get the house of your dreams! Fairway also has a remarkable number of jumbo loan programs to work with, so you can get the best program for your specific scenario. This is especially important in the Greater Puget Sound area, where the vast majority of homes reach toward the jumbo loan territory.
Can you use a jumbo loan on a second home?
Yes. We have a 10% down jumbo second home financing option.
Why do jumbo loans require so much documentation?
Jumbo loans require a high level of documentation because there is no secondary market for a jumbo loan, the bank that offers you your loan will continue to hold it for the lifetime of your loan and therefore wants to ensure that you can qualify for that loan.
Fairway is not affiliated with any government agencies. These materials are not from HUD or FHA and were not approved by HUD or a government agency.