What is a Jumbo Loan?

Meredith Medvec with Prosperity Home Mortgage: A jumbo loan is a loan that is not within the conforming loan limit. Every year the conforming loan limit is set and can vary from year-to-year based off what the average home valuations are. The 2021 conforming loan limit in Florida is $548,250.

When a Buyer Applies for a Jumbo Loan, What Qualifications Does the Lender Look For?

There are really big differences in applying for a jumbo loan versus a conforming loan. One of the major differences is credit score. The investors Prosperity Home Mortgage work with require a credit score of 700 minimum. Depending on the down payment and loan amount, a credit score of 720 to 740 may be required. When getting a jumbo loan, credit is paramount.

In addition to credit, you will need to show reserves. This is not your down payment and closing costs, since that money is expected at closing. In addition to those monies, you would typically need a minimum of six month of reserves (assuming this is your only property). Reserves are the sum of the monthly cost of owning a property. Reserves include the principal, interest, taxes, insurance, and HOA fees (when applicable). You would need 6 times that total housing payment in reserves. For example, if the total cost to own a home is $3,000/month, the lender would require proof of $18,000 in reserves. Reserves can be the form of a 401(k), IRA, and other assets of that nature. The lender does not require the assets to be liquidated; just proof that a buyer can access those reserves if needed.

How do Interest Rates Compare Between a Jumbo Loan and a Conforming Loan?

It depends on the market at the time. I personally have been in this business 16 years and can remember when jumbo rates were a full percentage point higher than a conforming loan. Right now, jumbo rates are actually not that much higher than a conforming loan. In the current market, jumbo loan interest rates are only .125% – .25% higher on average than a conforming loan. I personally think it is a great time to get a jumbo loan to take advantage of the lower interest rate.

How Are Appraisals Different on a Jumbo Loan?

Jumbo loan investors, in some cases, will require two appraisals. They want to assess the the risk of putting that loan on their balance sheet. For this reason, it is very important to the investor that they get an appraisal that is truly valid. In addition to two appraisals, the investor himself or herself may review the appraisal personally. On a conforming loan, the lender would be reviewing the appraisal to make sure it meets the requirements. On a jumbo loan, in many cases, we send the appraisals to the investor to review and approve them personally. It can add time to the process, as you can imagine.

Another difference is we have to reach out to appraisers to get quotes on how much is the appraisal going to cost. Every house is going to be different – different sizes, number of bedrooms and bathrooms, lot size, features, etc. An appraiser is going to look at each house and assess how much time it will take to appraise and how much they will charge. Because of this, the lender has to get appraisal bids and communicate it back to the client to ensure he or she is comfortable with the appraisal price. A typical conforming appraisal on a single family home is $450. A jumbo loan appraisal can be $1000 – $1500. They can get expensive, but it is because of the amount of work it takes for the appraiser to complete it.

What Specialty Jumbo Loan Products does Prosperity Home Mortgage Have?

We have an investor that allows a minimum 5% down. This loan product has to meet certain parameters. You would need a 720 credit score, low debt-to-income ratio, and 6 months of reserves, and it would apply up to a $850,000 loan. The investor does allow a loan up to $950,000 but the requirements change as you go between $850,000 to $950,000. It is a great product when you are considering upgrading to a jumbo loan and putting as little down as you possibly can. This price point is very common right now as people upgrade and want to keep money in the market.

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