Thinking about a really big home loan? Let's make it simple.
When you want to buy a fancy home that costs more than $766,550, you might need what we call a jumbo loan. But first, you need to show you're ready.
You should have:
- A good credit score (at least 700)
- Money saved for a down payment (10-20% of the home price)
- Extra money in the bank for 6-24 months of bills
These big loans cost more. You'll pay more in interest (about 6.5-7.5%) and fees (2-5%) than you would for a normal home loan.
The bank will look closely at:
- Your job and how much you make
- Your bills and what you owe
- What the home is worth
While it's harder to get a jumbo loan, it lets you buy bigger and nicer homes. Take time to think about if this type of loan is right for you.
What Is a Jumbo Mortgage
If you want to buy a really expensive home, you might need a jumbo mortgage. This is a special kind of home loan for houses that cost more than $766,550 in most places in 2024.
Getting a jumbo mortgage is harder than getting a regular home loan. You need to have good credit – like getting an A on your money report card.
You also need to show you can handle big payments and have lots of money saved up. Most banks want you to pay at least 10% to 20% of the house price upfront.
Think of a jumbo mortgage like a super-sized home loan. While it might cost a bit more in the long run, it helps people buy fancy homes or houses in places where everything costs more.
Current Jumbo Loan Limits
When you buy a home, you need to know about jumbo loans. These are big loans for expensive houses.
In most places, a jumbo loan is any loan over $766,550 in 2024. But in some pricey cities like San Francisco or New York, you can borrow up to $1,149,825 before it becomes a jumbo loan. These numbers change every year as house prices go up or down.
Before you get a jumbo loan, think about:
- Where your house is – each area has its own loan limits
- Special places like Alaska, Hawaii, Guam, and the U.S. Virgin Islands let you borrow more
- Even towns next to each other might've different limits
Ask your bank about the limits in your area. They know the latest numbers and can help you understand what you can borrow.
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Credit Score Requirements
Want to get a jumbo loan? You need a really good credit score of at least 700. Many banks want to see 720 or even higher. The best loans go to people with scores of 740 or more.
Your credit score shows how well you pay your bills. Before you ask for a loan, look at your credit reports. Banks will check them very carefully.
Need help? Talk to someone who knows about money. If you have credit cards with high bills, pay them down. This can make your score go up fast.
Even small changes in your score can help you get a better loan.
Down Payment Considerations
When you buy a big, expensive home, you need to save up a lot of money first. Banks want you to pay at least 10% of the home's price upfront, but most ask for 20% or more. This first payment is called a down payment.
If you can pay more money upfront:
- You might get a better deal on your loan
- Banks will be more likely to say yes to your loan
- You'll pay less each month
Some banks might let you pay less upfront if you have lots of money in the bank or own stocks. But since these are big loans, most banks want to see that 20% payment.
It's also important to have extra money saved after you buy the house. Banks want to make sure you can pay your bills for many months after you move in.
Remember: These big loans are different from regular home loans. You need more money saved up to get one.
Income and Asset Documentation
Getting a big home loan means showing where your money comes from. You need to share papers that prove what you earn. These include your work papers like W-2s and pay stubs.
You also need to share your tax forms. If you get money from other places, you need to show that too.
The bank will want to see how much money you have saved. They'll look at your bank papers and where you keep your money.
If someone gives you money as a gift, you need to show proof of that too.
Stricter Verification Requirements
Getting a home loan today takes more effort than before. Banks want to make sure you can pay them back.
You will need to show papers that prove your money and job are solid. If you want to borrow a lot of money, you need even more proof.
Here's what you must show:
- Tax papers and pay slips from the last two years
- Bank papers from the last 2-3 months
- Clear details about any big money moves in your accounts
If you work for yourself, you need extra proof:
- Papers that show how much money your business makes
- Business tax forms
- A note from your money expert saying your work will keep going
When the bank asks for papers, send them fast. The sooner you do, the quicker you can get your loan.
Proof of Financial Stability
Money matters need to be clear when you want to show you can pay your bills. You need to show where your money comes from. This means sharing pay papers and tax forms from the last two years. If you work for yourself, you need to show how much your business makes.
You also need to show how much money you have saved up. Share papers that show what's in your bank and any money you have saved for later.
People who give house loans want to see you have enough saved to pay your house bills for a few months. They check to make sure you don't owe too much money compared to what you make. You need to tell them about any big money you put in or take out of your accounts.
Also, try to keep your job while asking for the loan.
Jumbo Vs Conventional Loans
Getting a jumbo loan is tougher than a normal home loan.
You need to show you make more money and have more savings in the bank. Your credit score needs to be better too – at least 700, not like the lower scores that work for normal loans.
The big thing is you need more money up front. With a jumbo loan, you must pay 10-20% of the house price first. Normal loans only ask for 3-5%.
Qualifying Income and Assets
Getting a jumbo loan means showing you make more money and have more savings than you'd need for a regular home loan. Think of it like proving you can handle bigger payments.
For a jumbo loan, you need to keep enough money in your bank to cover 6-12 months of payments. Regular loans only ask for 2-3 months.
Your monthly bills can't be too big compared to what you make. For jumbo loans, your bills should be less than 43% of your monthly pay. Regular loans let you spend up to 50%.
Banks will look very hard at where your money comes from. You'll need to show:
- Tax papers from the last 2 years
- Pay stubs
- W-2 forms
You also need to explain any big money you put in your bank. The bank wants to see all your savings and work money to make sure you can pay back the big loan.
Down Payment Differences
Getting a jumbo loan means you need to save up more money upfront than with a normal loan. For a normal loan, you might only need to put down 3% to 20% of the home's cost.
But with jumbo loans, you have to put down at least 10% to 20%.
Let's say you want to buy a home that costs $750,000. With a jumbo loan at 20% down, you'd need $150,000 in cash.
But with a normal loan at just 3% down, you'd only need $22,500.
The more money you can put down, the better your interest rate might be.
Some banks might ask you to put down even more money – up to 25% or 30% – if you want a really big loan or if your credit score isn't very high.
Stricter Credit Requirements
Getting a jumbo loan is harder than getting a smaller home loan. You need better credit and more money saved up.
Most regular home loans want you to have a credit score of 620. But for jumbo loans, you need 700 or higher. This is because these loans are bigger, so banks want to be extra careful.
To get a jumbo loan, you need:
- A clean credit history with bills paid on time
- Less debt compared to what you earn
- Enough savings to cover 6-12 months of house payments
The bank will look closely at your job and money. They'll want to see:
- Your tax papers from the last two years
- Your bank records to make sure you can pay the big monthly bills
Banks are more careful with jumbo loans because they're lending more money. They want to make sure you can pay it back.
Interest Rates and Costs
Getting a bigger home loan means paying attention to interest rates, since they change how much money comes out of your pocket each month. Big home loans (called jumbo loans) usually cost a bit more in interest than regular home loans, but the difference isn't as big as it used to be. You'll also need to pay more when you close on the house.
| Cost Type | Jumbo Loan | Conventional Loan |
|---|---|---|
| Interest Rate | 6.5-7.5% | 6.0-7.0% |
| Down Payment | 10-20% | 3-20% |
| Closing Costs | 2-5% | 2-3% |
| PMI Required | Varies | Yes if <20% down |
When you buy a bigger house, you need to think about more than just the loan costs. You'll pay more in:
- Property taxes
- House insurance
- Fixing things when they break
A small change in your interest rate can make your monthly payment go up or down by a lot of money when you have a big loan.
Property Types and Restrictions
Getting a jumbo home loan means you need to pick from certain types of homes. Not all homes can get this big loan.
Most banks will give you a jumbo loan for:
- A home where you'll live
- A vacation home
- A home you plan to rent out to others
For your main home, you can buy:
- A house
- A condo
- A home in a planned community
If you want a vacation home, you'll need:
- More money for a down payment
- To pay more interest
If you want to buy a home to rent out, you must:
- Have a very good credit score
- Show lots of papers about your money
Talk to your bank first. Each bank has its own rules about what homes they'll loan money for.
Qualifying Debt Ratios
Getting a big home loan means showing you can pay it back each month.
Think of it like your monthly bills versus how much money you make. We call this your debt ratio – it shows how much of your monthly pay goes to bills.
If you make $1000 each month and spend $430 on bills, that's a 43% ratio. Most banks want to see your ratio at 43% or less.
Some might let you go up to 50% if you have a very good credit score or lots of savings in the bank.
Monthly Income Vs Debt
Getting a big home loan means showing you make enough money each month to pay for it.
Think of it like a puzzle – your monthly pay needs to be much bigger than your bills.
Your lender will look at two main things:
Money coming in:
- Your take-home pay
- Money from your investments
- Money from any rental homes
Money going out:
- Car payments
- Student loans
- Credit card bills
- Your new house payment
The rule is simple: your monthly bills should take up less than 43% of your monthly pay.
Some lenders might want this number to be even lower, mainly if you work for yourself or want to borrow a lot of money.
For example, if you make $10,000 each month, your total bills and new house payment should be less than $4,300.
This helps make sure you won't struggle to pay your bills.
Maximum DTI Limits Allowed
Getting a home loan means looking at how much money you make and spend each month. This is called your DTI. You need to keep your monthly bills low compared to what you earn.
If you want a regular home loan, you can spend up to 43% of your money on bills. Some banks may let you go up to 45%. FHA loans are more easy-going and may let you spend half your money on bills if you have good credit or savings.
Big loans, called jumbo loans, are more strict. Most banks want you to spend no more than 43% of your money on bills. Some may only let you spend 38-40%. You need to show you make good money and have savings.
Your house payment should be less than 28% of what you make each month.
Remember: The less money you spend on bills, the better deal you can get on your loan.
Cash Reserve Requirements
Getting a big home loan? You need to save some money first. Your lender wants to know you can pay your monthly bills even if times get tough.
Think of savings like a safety net. You need enough money in the bank to pay your house bills for many months. House bills mean things like:
- Your loan payment
- House taxes
- Home insurance
For really big loans (called jumbo loans), you need to save more:
- For loans under $1 million: Save 6-12 months of bills
- For bigger loans: Save 12-24 months of bills
You can keep this money in:
- Bank accounts
- Money you invest
- Savings for when you retire
Save this money before you ask for a loan. Keep saving it after you buy your home too. This helps you stay safe with your money.
Appraisal Guidelines
Getting a big home loan means you need an expert to look at your house. This is even more true for very expensive homes.
A home expert will:
- Look at your house closely
- Compare it to nearby homes that sold recently
- Check all the special things that make your home nice
For regular loans, you need:
- One expert to check your house
- Similar homes within 1 mile
- Sales from the past 6 months
- Basic house details
For jumbo loans, you need:
- Two experts to check your house
- Similar homes within half a mile
- Sales from the past 3-4 months
- More house details
The expert will look at things like:
- Nice finishes
- Custom features
- Special upgrades
- Home improvements
Keep all papers about work you did to make your home better. This helps the expert give your home the right price.
Refinancing Jumbo Loans
When you want to get a better deal on your big home loan, you need to show the bank you can handle it. The bank will look at three main things about you:
Your money in the bank – Keep enough saved to pay your house bills for 6-12 months.
Your bill-paying history – Banks like to see you pay bills on time and want a high credit score of 700 or more.
Your job – Show you've had steady work for at least two years.
Getting a new big home loan costs more money up front than a regular loan. Take time to add up all the costs.
Make sure the money you save is worth the cost of getting the new loan.
Think about how long you want to stay in your home. This helps you know if getting a new loan is a smart choice for you.
