Pride Lending’s helpful service can help you afford the big home of your dreams with jumbo loans!
Jumbo Loans: Your Gateway to Luxury Real Estate
Jumbo loans are conventional mortgages, meaning that they are not government-backed and are provided by private lenders. Jumbo mortgages are conventional loans that are larger than the conforming loan limits set by the Federal Housing Finance Agency (FHFA).
These loan limits determine whether Fannie Mae and Freddie Mac, the two government-sponsored enterprises, can purchase the mortgage for sale on the secondary market. Thus, non-conforming loans must be sold to other investors rather than to these government-sponsored enterprises, or they may stay in the lender’s portfolio.
Only a few government-backed loan programs, like the VA, offer jumbo loans, as these mortgages are typically meant for less-qualified borrowers. A VA jumbo loan has many of the same requirements as a typical jumbo loan, including a good credit score and ample cash reserves.
For well-qualified borrowers, jumbo loans are a great way to afford pricier property than could be possible with conforming loans. Not only can they be used to buy a primary residence, but a jumbo mortgage is a great way to purchase investment properties, such as luxury apartments or resorts.
Conforming Loan Limit by Federal Housing Finance Agency (FHFA)
The conforming loan limit is the threshold that determines whether a conventional loan can be bought by Fannie Mae and Freddie Mac, who provide liquidity to the housing market by selling loans on the secondary mortgage market.
According to the Housing and Economic Recovery Act, the FHFA has been required to set local conforming loan limits by year since 2008. These loan limits are determined by the area’s housing market and the general inflation in the housing market by year. They’re set by county, so an adjacent county may have a much different cost than its neighboring municipality. Additionally, Metropolitan Statistical Areas (MSAs) generally have the same limit, meaning the whole county may have a higher limit.
The FHFA will take the Housing Price Index (HPI) to determine the inflation rate of housing prices in a given area. They divide the HPI from the third quarter of a given year by the HPI at the same time last year to get a percentage, which is then used to adjust the loan limit for the current year. For example, if the HPI has gone up by 5%, then the loan limit would also be raised by the same amount. The FHA limit is directly tied to the FHFA limit and is capped at 65% of the corresponding conforming loan limit in a given area.
There are “floors” and “ceilings” of the loan limits, meaning that even if the typical price range in a given area is below the floor, they will still receive the same limit as if they had more expensive housing.
In 2024, conforming loan limits vary from $766,550 for a single-family home in a low-cost area to $1,149,825 for a single-family home in a very expensive area. There are different limits for two, three, and four-unit properties; for example, the limits for a four-unit property range from $1,474,400 to $2,211,600. Alaska, Guam, Hawaii, and the U.S. Virgin Islands have different thresholds due to the high cost of construction and housing in these areas.
Any conventional mortgage above these limits is considered a jumbo loan, and they are only given to those with a higher credit score and down payment to help reduce the lender’s risk.
Depending on the county, a ceiling may still not be high enough to afford housing in a given area. For example, very specific high-cost areas, such as Atlanta, Georgia, may have neighborhoods where the average housing price is far beyond the county limit, which is where jumbo loans become useful tools for homeowners and investors.
Benefits of Jumbo Loans
Jumbo mortgage loans can be a great option for those who can afford larger mortgage payments and want more home than could be possible with conforming loans. Some of their benefits include higher loan amounts, good rates, and more flexible terms.
Jumbo mortgages are also an incredibly powerful way for marginalized individuals to start building a portfolio and advance their careers – which spells positive results for the economy as a whole. For example, those with ethnic and gender diversity create 30% more returns on investment than their white male counterparts. Despite having 16% less funding, LBGTQ+ entrepreneurs created 36% more jobs than their cishet peers, proving that diversity equals opportunity.
Whether you are simply buying a sumptuous property for yourself and your family or you intend to buy real estate for business purposes, a jumbo mortgage is your ticket to success.
Access to Larger Loan Amounts
The primary benefit of a jumbo loan is that you are no longer restricted by the conforming loan limit, which may be too low for the type of property that you want to secure. For example, the average home value in San Francisco is $1,216,087, but the conforming limit is just $1,149,825, meaning that you could not purchase even a typical property in this high-cost area.
For those with military service, a jumbo VA loan affords them the same security as typical VA loans, such as only requiring a VA funding fee rather than private mortgage insurance and the tidewater appraisal process. Better yet, veterans claiming their entitlement for the first time do not have a cap on what they can borrow, meaning it is much easier to access jumbo loans than it might be otherwise.
Competitive Interest Rates for Well-Qualified Borrowers
Because they are conventional mortgages, jumbo loans often have excellent mortgage rates, which are often higher than conforming mortgages. If you have a strong borrowing profile, you’ll gain access to the best jumbo loan rates, which help reduce your mortgage debt while still enjoying a sumptuous property.
The jumbo loan rate is tied to other mortgage rates, so savvy investors can carefully time the market to buy their investment and score a great rate while enjoying higher loan limits than otherwise.
Flexible Loan Terms and Options
Jumbo borrowers have various options regarding their terms, such as choosing an adjustable-rate mortgage or a fixed-rate mortgage. We can also help you find low down payment options with excellent jumbo mortgage rates to help reduce your upfront expenses.
Additionally, you can get jumbo loans whose terms are longer than 30 years if necessary, which isn’t possible with a conforming mortgage. This can lower your monthly expenses and help you save more from your business ventures, ensuring you have a great cash flow.
Ability to Finance Luxury Properties and Second Homes
Many borrowers choose a jumbo mortgage loan because they want a better home that would be possible with a conforming conventional loan, particularly in high-cost areas.
With this option, you can buy a great property in the best areas of the United States, such as a penthouse in New York or a beachside property in Florida. You’ll enjoy the many benefits of conventional loans, such as competitive interest rates and flexible loan terms while having a larger budget to use.
Jumbo loans work perfectly for investment properties and second homes, enabling you to buy a great property in a perfect vacation spot or generate high-class rental income in the most desirable destinations.
Tailored Solutions for High-Net-Worth Individuals
The sky is truly the limit for LBGTQ+ and BIPOC people: LGBT entrepreneurs like Tim Cook, Giorgio Armani, Elton Jon, and Jennifer Pritzker, the first openly transgender billionaire in the world, prove that anything is possible. Additionally, 24% of America’s millionaires are BIPOC, with many soon to join that list. Wealthier individuals may find that the loan limits make it hard for them to purchase their dream properties, which is where jumbo mortgages come into play.
Because a jumbo loan is not subject to all of the same restrictions as a conforming mortgage, jumbo lenders have a bit more freedom in how they underwrite these home loans. Those with high net worth will receive more personalized service that takes their entire financial situation into account. For example, some jumbo loan lenders working with very wealthy clients may not require tax returns for self-employed borrowers, instead approving them based on their assets and debt payments.
Our team at Pride Lending will take the time to get to know you and find lenders who meet your specific needs, including using alternative financial information to qualify for a jumbo loan.
Jumbo Loan Requirements
While jumbo loans are incredibly helpful for those who want a luxury property, they also come with a higher risk of default because of the high mortgage expenses. Additionally, lenders have fewer options to offload a struggling mortgage because these loans can’t be purchased by Freddie Mac or Fannie Mae. Their only option is to sell them to an investor or carry the loss themselves, both of which may cost them money in the long run.
Because borrowing more than the maximum amount allowed for a conforming loan comes with risks for both you and the lender, there are stricter requirements to get a jumbo loan. You can expect to need a better credit history, a higher down payment, and ample cash reserves; additionally, there will be higher closing costs associated with a jumbo loan.
Higher Credit Scores
The minimum credit score for a typical home loan is 620, but this jumps significantly for a jumbo loan. Generally, a lender will want at least a 700 score at the minimum; however, this will mean you get less advantageous mortgage rates.
To get the best interest rate, expect to have a credit score of 740 or better for a jumbo loan. Some lenders may accept a score as low as 680, but this may come with higher upfront expenses, including a greater down payment and more cash in reserve.
Larger Down Payment
Regarding a down payment, jumbo loans typically require a higher percentage than a conforming home loan because they are riskier for the lender. Many lenders expect a 20% down payment, though some may go as low as 10%.
Regarding a VA jumbo loan, while the VA home loan program doesn’t require down payments, your lender may ask you for a down payment to help protect their interests if you default.
On the plus side, offering a 20% down payment means that you don’t have to deal with private mortgage insurance, which will reduce your loan payments. The more money you put down, the better interest rate you can access, another reason that a bigger down payment is a good idea.
Lower Debt-To-Income (DTI) Ratios
The maximum debt-to-income ratio for a jumbo loan is 43%, but having such a high DTI will mean you may have to provide a larger down payment and a higher interest rate. To ensure the best chance at competitive mortgage rates, strive for a 36% or lower debt-to-income ratio.
Significant Cash Reserves and Assets
While other loans may not expect you to have funds on hand to afford your mortgage, non-conforming loans generally expect some money in reserve before you can get approved. Cash reserves refer to the liquid assets you have available to afford your monthly payment should you experience a sudden drop in income. This can include money in savings accounts, investments, or a business bank account that you can tap if necessary.
In general, a jumbo loan lender will expect that you have at least 6-12 months of monthly payments and other associated home costs in reserve before they approve a jumbo loan.
More Rigorous Documentation
As jumbo loans are riskier for the lender, they will expect more documentation. For example, they may request more than 2 to 3 months of bank statements, as well as documentation from the Internal Revenue Service that supports your income claims, like tax returns. You’ll also have to present a credit report, which may be denied if you have any bankruptcies or foreclosures.
The property itself will also be scrutinized more closely. Jumbo loans often require more than one appraisal, as the lender wants to ensure that the property is worth the purchase price. You will also need an inspection to assess whether the home is in good repair.
Choosing the Right Jumbo Loan
You have numerous options for jumbo loans, including more options than are possible with the typical home loan. This includes fixed-rate, adjustable-rate, interest-only, and portfolio loans, all of which may be a great option. Our loan officers at Pride Lending will help you work through your options and choose the perfect jumbo loan for your needs.
Fixed-Rate Mortgages
Fixed-rate mortgages provide security and predictability, as you’ll be making the same mortgage interest payments throughout the life of the loan. This allows you to budget for your mortgage with no surprises in your monthly expenses. However, a fixed-rate loan also requires you to time the market carefully to ensure you get the best rate.
Adjustable-Rate Mortgages (ARMs)
An adjustable-rate mortgage has a low introductory rate that allows you to save money during the first 5 to 7 years of your loan term. After that, the interest rate will rise in relation to the current market rates, adjusting at set periods throughout the rest of your mortgage. For example, your rate may change yearly, or it may change once every six months.
There are caps on how high your rate can go, which offers security. The low introductory rate can be quite tempting, but it’s important to budget carefully throughout this term to ensure you can afford your mortgage after the adjustment period begins.
Interest-Only Options
An interest-only jumbo loan means you only pay the interest on your mortgage at the beginning of the term. This interest-only period may be up to 10 years, after which time you will begin to pay off the rest of the balance for the rest of the term.
You may be able to get up to 40 years’ terms depending on the lender, which will provide you ample time to pay back your mortgage. The interest-only introductory period enables you to save money as you build your assets or get an investment property into shape, but it’s important to think ahead and ensure you can afford the mortgage once you start paying back the principal.
Portfolio Loans
Portfolio loans are kept by the lender rather than sold to other investors, meaning they have sole discretion over who to approve. This means that they may be more flexible with their requirements and provide more advantageous loan options to qualified borrowers; however, they may also charge higher interest rates or require a greater down payment.
The Jumbo Loan Process
Jumbo loans have much the same approval process as other loans, but they do require more documentation and may take longer to underwrite because the lender wants to ensure that you’re a perfect fit for their program. Our team will walk you through all the steps of getting a jumbo loan, including the following.
Check Requirements
As with other loans, you need to demonstrate your creditworthiness with documentation, but these are stricter, thanks to the higher loan amounts. Make sure that your FICO score, income, cash reserves, and other qualifications match the typical expectations of a lender.
Contact Pride Lending
When you’ve determined that you might be eligible for these products, give us a call for a loan consultation. We’ll go through your finances and ascertain what you might be able to afford, then match you with lenders who provide products that match your needs.
Submit Paperwork for Preapproval
The luxury home market is often fiercely competitive, which is why a preapproval can make your shopping process much easier. You can submit all of your details online so that we can assess what your tentative loan amount may be. Documentation will include bank statements, W2s or 1099s, information from additional accounts like investment accounts, and a list of all your debts. You will need to provide a credit report and demonstrate that you have funds in reserve to afford your mortgage in case something happens to your income stream.
Find a Home
This is the part that everyone looks forward to when they qualify for a jumbo loan: house shopping. Because these homes are more expensive, you should take extra care when assessing the property by working with a realtor familiar with the luxury market in your area. If you’re purchasing an investment property with a jumbo loan, work with a commercial real estate agent who can provide helpful tips on its earning potential.
Make an Offer
Your realtor can assist you in crafting an offer letter that is competitive yet fair. If you have any questions about what you can afford, you can always get in touch with us for further advice.
Complete an Application
The application will have many of the same details that were necessary during preapproval, including financial aspects like your tax returns and bank statements. However, it will also ask for information about the target property, which the lender will need in order to ascertain whether it is worth the loan amount they are willing to offer.
Offer Acceptance
If the seller has agreed to your terms, you will sign a purchase contract, and the process will then move on to the next steps, which include an inspection, underwriting, and approval.
Inspection
This checks that the home does not have any serious concerns, like a cracked foundation, leaking roof, or insect infestation. If there are major problems, you will need to negotiate with the seller over who is responsible for fixing them.
Conditions
If the inspection has come back clear or you are still interested in purchasing the property despite any issues that may be present, then we will start looking over the purchase contract with you to determine what conditions are necessary to protect your interests.
Underwriting
We will send the information we have gathered, such as the inspection report and purchase contract, to the lender’s underwriter; we do not underwrite loans in-house. The underwriter will review all of the information about you and the property in order to ensure that everything is correct and that your risk level is acceptable.
Get an Appraisal
Appraisals are crucial components of jumbo loans because the lender may deny you if the property comes in under the purchase price. You’ll work with a qualified appraiser, who will use market values in the area, as well as the condition of the home, to identify how much it is truly worth. You may have to get more than one appraisal, and the process will be more rigorous than it is for the typical home loan.
Clear to Close
The underwriting process for jumbo loans may take longer than for the typical mortgage, as the lender has more at risk than for mortgages below the loan limits. Expect to provide additional documentation during this time, such as more tax returns. When you are finally approved, things proceed much as they do for other mortgages.
We’ll get a message saying that you are clear to close, and we will schedule the close date with you. You’ll also get details about how to transfer the money to the title company for the upfront expenses.
Close on Your New Home
You will provide your down payment and borrowing costs through a personal check or bank check, then sit down with the lender to go through the loan disclosure statements. After that, you sign paperwork affirming that you are the new owner of the property and get the keys to your brand-new home.
Why Choose Us for Your Jumbo Loan?
We aim to help everyone, regardless of their background or identity, who needs larger financing options than would be available with a conforming loan product. We are a group of allies and members of marginalized communities, including LGBTQ+ and BIPOC individuals, who understand the challenges that high-net-worth people face in the mortgage industry.
Our team is familiar with the unique needs of high-net-worth individuals, including their income streams and the documentation required to access jumbo loans. Most importantly, we work hard to find you the very best jumbo loan rates in the business, never compromising when it comes to your loan experience.
Pride Lending is the first broker in the United States that focuses on LGBTQ borrowers, who have historically been sidelined from homeownership and investment. We are a Certified LGBT Business Enterprise, founded by the 2022 National Association of Mortgage Brokers (NAMB)’s Broker of the Year. With us, you can expect uncompromising quality, unparalleled service, and tailored advice that speaks to your particular needs.
Apply For a Jumbo Loan With Pride Lending
Rise above loan limits with a jumbo loan! We’re ready to help you pick the supersized property of your dreams. Contact us today to learn more about the process and get pre-approved from the comfort of your own home. We look forward to assisting you with all of your jumbo loan needs.
