Jumbo loans, or jumbo mortgages, are loans that are for big-ticket homes. These are homes that the usual conventional loans will not cater to. These are properties that are usually in the high-end market. Jumbo loans are properties that cost higher than the ceiling that the Federal Housing Finance Agency (FHFA) has set.
Depending on which state you are located, the limits of conventional loans change yearly and for 2020, a single-family home will have a $510,400 limit. For houses in areas that are on the more expensive side, it can go to as much as $765,600. In areas like Hawaii, loan limits can even be higher. But for jumbo loans, the limit can go as high as how the lender sees your capacity to pay would be. $1 Million is not uncommon for jumbo loan approval
Qualifying for a jumbo loan is not as easy as compared to taking out a conventional loan. Because jumbo loans offer a greater risk for lenders, they will be more stringent when it comes to the borrower's credit score. To qualify, FICO credit scores are usually pegged at 700 or sometimes higher. Lenders will also check your money in the bank to make sure that you have enough reserves to cover at least a year's worth of payments for your jumbo loan.
Usually, the jumbo loans will require borrowers to put in a higher down payment for the property they are eyeing. Putting down 25%-30% can be expected although some lenders can lower it down depending on the capacity of the borrower.
Be prepared to pay additional fees when you are applying for a jumbo loan as there will be additional steps in processing your loan. Some lenders will even ask for another appraisal of your home's value to make sure that the money you are borrowing from them is really the market value of the property that you are applying for.