Jumbo Mortgages

jumbo loan

What Is a Jumbo Mortgage Loan?

A “jumbo mortgage” is any single loan amount over the conforming loan limit (set by the Federal Housing Finance Agency), which is currently $424,100 for a one-unit property in the contiguous United States. So if your loan amount is $424,101 or higher, your home loan is considered jumbo.

However, it should be noted that there are different jumbo limits depending on both the number of units on the property, along with where the property is located.

For properties located in the contiguous United States, including D.C and Puerto Rico, jumbo loan limits are as follows:

1-unit property: Greater than $424,100
2-unit property: Greater than $543,000
3-unit property: Greater than $656,350
4-unit property: Greater than $816,650

In Alaska, Guam, Hawaii, and the U.S. Virgin Islands, jumbo loan limits are higher:

1-unit property: Greater than $636,150
2-unit property: Greater than $814,500
3-unit property: Greater than $984,525
4-unit property: Greater than $1,223,475

As you can see, in some parts of the country, you can get a rather large loan without entering into jumbo loan territory. The same goes for multi-unit properties.

Rather importantly, jumbo mortgages cannot be sold to Fannie Mae or Freddie Mac, so outside investors typically buy these loans in securitized bundles on the secondary market, or lenders simply keep them on their own books.

Jumbo loans carry greater risk for a number of reasons. Along with the larger loan amounts financed and fewer available investors, they also tend to be tied to luxury residences, which are known to be harder to sell in a short amount of time, mainly due to the general lack of wealthy, prospective home buyers out there. Luxury homes are also more prone to valuation shifts than moderately priced homes during market shifts.

Conforming Jumbo Loans – A Hybrid of Sorts

New legislation has also brought about so-called “conforming-jumbo loans,” which are neither jumbo loans or conforming loans, and range between $424,100 and $636,150 for both conventional loans and FHA loans. Outside the contiguous United States, this number rises to $954,225.

They typically carry interest rates closer to those of conforming loans, with perhaps a slight premium.

They are now known as “high balance mortgages,” meaning they aren’t conforming loan amounts, but aren’t jumbo loan amounts either. So a loan amount in these high-cost areas will often be slightly more expensive to finance than a conforming loan, but a bit cheaper than a jumbo loan.

As you can see from the image below, we might see a tight range of rates that slowly inch higher in each loan amount category.

Importantly, these hybrid loans are still backed by Fannie Mae, Freddie Mac, and the FHA, meaning more lenders offer them, whereas only certain lenders will provide jumbo financing.

Jumbo Mortgage Rates Are Generally Higher

jumbo mortgage rates

Because of the associated risks, jumbo mortgage loans tend to carry slightly higher mortgage rates, although not necessarily by that much. The difference may only be .25% – .50% higher, or borrowers may just lose out on any lender credit offered for a conforming loan amount.

As seen in the illustration, if a conforming 30-year fixed loan (non-jumbo) is going for 3.5%, you might expect to pay 3.75% for a comparable jumbo mortgage. While that might not seem like a lot, it can boost the monthly payment quite a bit due to the large loan amount.

On a $800,000 loan, we’re talking about a $113 difference each month. Perhaps more importantly, it increases the total amount of interest paid by nearly $41,000 over the life of the loan.

Most mortgage lenders offer the same loan programs for jumbo loans as they do for conforming loans, such as fixed-rate loans, ARMs, and interest-only home loans.

However, it is much more difficult for borrowers to find zero-down jumbo mortgages post-crisis. Most lenders back in the early 2000s could provide 100% financing on deals up to around $1.5 million!

Keep in mind that most jumbo lenders have loan amount limits as well, which usually drop as the loan-to-value (LTV) or combined-loan-to-value (CLTV) gets closer to 100% financing.

For example, you may be limited to a loan amount of $1.5 million at 70% LTV, but able to borrow $2 million at 80% LTV. If your LTV is below 65%, loan amounts of up to $3 million may be possible. Of course, these are just some examples, guidelines will vary by lender.

Super Jumbo Loans – The Really Big Ones

Some jumbo loans are known as “super jumbo loans,” much to the excitement of mortgage brokers and loan officers who think they’ve got a huge deal on their hands (and dollar signs in their eyes).

While there might be some argument, a true “super jumbo loan” is any loan amount above $650,000, ranging up to $20 million or higher.

This term is probably used incorrectly on a daily basis, depending on the state in which the overzealous loan officer resides. I suppose it’s all relative.

Tip: You can break up your loan into a first and second mortgage to avoid paying more for a jumbo loan. Just make sure the combined rate is cheaper than what it would be otherwise.

Jumbo Loans After the Housing Crisis

For a period of time after the mortgage crisis took hold, jumbo mortgage rates were quite a bit higher than conforming rates, and it was much more difficult to obtain financing for jumbo loans than it had been.

This was mainly because the secondary market for jumbo mortgages, or really any mortgages not backed by the government or Fannie/Freddie, had simply dried up. As a result, financing those types of loans came at a premium.

Today, now that the housing market has largely recovered, jumbo loans are a lot easier to obtain and pricing is quite favorable. In fact, it’s possible to secure a comparable rate or even lower rate than a conforming loan can afford.

Many investment banks offer very competitive jumbo rates to their clientele that can rival conforming rates. Additionally, high net-worth individuals can take advantage of pricing specials if they have a large amount of assets with a certain depository.

In other words, don’t assume a jumbo will cost more – while the loan amount might be high, the rate can be quite low. And today jumbo loan requirements are quite flexible.

However, if you’re looking to save a little money and broaden your loan options, consider putting down a little more money if you happen to be close to the conforming/jumbo threshold. It might just make life a little easier.

Jumbo Mortgage FAQ

How much is a jumbo mortgage?

Any loan amount above $424,100 for a one-unit property in the contiguous United States, including D.C. and Puerto Rico. Higher limits for multi-unit properties and for properties in Alaska, Guam, Hawaii, and the U.S. Virgin Islands. See top of page for all the numbers.

How much is a jumbo loan in California? Or any other state.

In my home state, and more specifically, city of Los Angeles, it starts above $636,150. However, it varies by city, so some areas of California start at just above $424,100. Check this list to see where your city stands. It’s not a state-based calculation, so make sure you check the city!

How hard is it to get a jumbo loan?

As noted, it was very difficult post-mortgage crisis to even find a lender willing to offer them. But it has since gotten much, much easier. And today there are plenty of options from all types of different lenders. In fact, some lenders will now offer a jumbo with just five percent down!

However, I would still say qualifying is a bit more difficult than it is for conforming loans. Often you’ll need a larger down payment and a strong balance sheet (healthy amount of assets and solid income) to get approved. Don’t be deterred though!

Do jumbo loans require mortgage insurance?

It depends. If the LTV is above 80% and the lender requires it then yes. If the LTV is below 80% or the lender doesn’t require it, then no. Often it isn’t required because the minimum down payment will be at least 20%. If the LTV is above 80% and it’s not explicitly charged, you could argue that it’s built into the higher rate anyway.

What is the minimum down payment on a jumbo loan?

Some aggressive lenders are now only asking for 5% down, though you’re more likely to see a down payment requirement of at least 10%, if not 20%. But if you shop around you can find a lot of flexible options these days.


6 Comments

  1. Sharika July 5, 2013 at 2:40 pm -

    I’ve noticed lately that mortgage rates are lower on jumbo loans vs. non-jumbos? Is this because the Fed is going to stop buying mortgages backed by Fannie Mae and Freddie Mac?

  2. Colin Robertson July 8, 2013 at 1:00 pm -

    Pretty much – as investor demand for conforming mortgages decreases (thanks in part to Fed exit), interest rates will need to rise to lure in more buyers. Conversely, as more investors seek jumbo loans, rates should drop.

  3. Igor July 11, 2013 at 8:35 am -

    I recently applied for a jumbo loan and was told it would be cheaper if it were conforming. So I guess it depends on the lender. I might be able to bring in some cash to keep it under the jumbo limit though. Gotta do the math to see if that makes sense.

  4. Colin Robertson July 15, 2013 at 1:26 pm -

    Yeah, last I checked, Wells Fargo was offering lower rates on jumbo loans than conforming loans, but it might be short-lived, assuming things normalize again soon.

  5. Walt July 27, 2013 at 6:49 am -

    I’ve seen the opposite. It depends which bank you’re dealing with and what they specialize in. Most of the time jumbo loans will be priced higher than conforming loans. That’s the norm, so anything opposite of that is the exception, not the rule.

  6. Hassan July 29, 2013 at 10:27 am -

    Yep. More often than not your jumbo loan is going to price higher than a conforming loan. There’s less liquidity for jumbos on the secondary market, so they often carry a premium.

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