Big homes often call for big loans and, luckily for many eligible clients, there is a loan product that can offer assistance. The jumbo loan can help you afford a bigger or more expensive home or refinance to lower your rate, change your term or take cash out.
Whether you’re looking to purchase or refinance, a jumbo loan may be a good option for you. But before diving into the world of big loans, it’s important to know the basics, including what a jumbo loan is and what it may require of you and your property.
What’s A Jumbo Loan?
A jumbo loan is any mortgage where the loan amount is higher than the conforming loan limits set by the Federal Housing Finance Agency. As of this writing, in general, for a one-unit property, that limit is $484,350. It might be more if you live in a high-cost area, but it will never be higher than $726,525 for one unit in 2019. These numbers do increase when you’re financing more units.
One cool thing about the jumbo loan is that there’s no mortgage insurance requirement. However, because this loan may come at a higher risk to the lender, it typically has slightly stricter qualification requirements than typical conforming loans with lower limits. Here we take a deeper look at some of those requirements.
Jumbo Loan Requirements
What you need to qualify for this loan will depend on what type of jumbo loan you’re getting and the amount you need to borrow. There are a few loan types we’ll go over:
- Home purchase
- Rate or term refinance
- Cash-out refinance
- Investment property purchase or refinance
Let’s start with the requirements to purchase a home with a jumbo loan.
When it comes to getting a jumbo loan to purchase a home, the specific eligibility requirements will depend on the loan amount. If you’re buying a one-unit primary property with a loan amount of up to $1 million, you’ll need to have a minimum FICO®Score of 760 and a minimum down payment of 10%. The maximum debt-to-income (DTI) ratio– which compares your minimum monthly installment and revolving debt payments to monthly income – must be no higher than 36%.
If the primary residence has more than one unit or the loan amount is higher than $1 million, you’ll have slightly different credit score requirements and you’ll need to make a higher down payment – up to 40%, depending on the loan amount. You’ll also need to have a 43% DTI or lower.
To get the specific requirements for a jumbo purchase loan over $1 million, speak with one of our Home Loan Experts.
Rate Or Term Refinance
If you plan on doing a rate or term refinance, you’ll need to have a minimum FICO®Score of 700 and a maximum DTI of 43%. The amount of equity you’re required to have in the home to refinance will depend on the loan amount. For a loan amount of up to $1.5 million, you must have at least 20% equity in your home. For loan amounts up to $3 million, you’ll need to have more equity in the home (up to 40%).
Cash-Out Refinance Requirements
If you have a primary, one-unit property, you can take cash out with a jumbo loan refinance. However, there are limits to how much cash you can take out, depending on how much equity you have in your home. These limits are as follows:
- If you have less than 40% equity in your home, you can take out up to $350,000.
- If you have between 40% and 50% equity in your home, you can take out up to $500,000.
- If you have 50% or more equity in your home, you can take out up to $750,000.
Whatever the amount of cash you take out in your refinance, you must leave a certain amount of equity in the home. For loan amounts up to $1 million, you must leave a minimum of 20% equity in the home. You can take cash out on loan amounts up to $2 million, but you’ll need to leave more equity in the home (up to 30%).
Jumbo Investment Properties
If you’re looking to purchase or do a rate-term refinance on an investment property, you can do so with a jumbo loan. Here are the details:
- The property must be one or two units.
- You need to have a 40% down payment or equity stake in the property.
- The loan amount can be up to $1 million.
- Your DTI should be no greater than 43% with a minimum median FICO®Score of 760 or better.
Expanded Acreage For Jumbo Loans
Whether you’re purchasing or refinancing, you may use a jumbo loan for a home on up to 40 acres of land. However, there are certain requirements you should be aware of if you’re getting a property with more than 20 acres of land.
First, your down payment or equity amount must be 10% more than it would be for properties with 20 acres or fewer. For example, if you were purchasing a one-unit primary jumbo property with a loan amount of $1 million or less, your down payment would have to be 20% instead of 10%.
Second, the appraiser must be able to find at least two comparable properties in the area with land amounts that are no less than 5 acres below the acreage you’re financing. That means, if you were getting a mortgage on a home with 35 acres, two comparable homes would have to be found with at least 30 acres of land.
Also, the value of the land itself cannot make up more than 35% of the overall appraised value of the land and the home.
For the sake of convenient math, let’s say you were financing a home with an overall appraised value of $1 million. No more than $350,000 of that appraised value can be based on the value of the site itself.
Finally, the land can’t be zoned for agricultural use.
Get Started With The Jumbo Loan
Are you interested in any of these purchase or refinance options for jumbo loans? You can go ahead and start the process online or give one of our Home Loan Experts a call at (800) 785-4788. If you have any questions, leave us a note in the comments below.