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If you’re looking to buy a luxury home, you’ll probably need a jumbo loan to finance your purchase. Jumbo loans are typically used for financing high-end homes or properties in high-cost areas where real estate is more expensive, like in California.
Homes with a higher purchase price mean that a higher loan amount is needed, and often that home loan will exceed the limits for a conventional loan. Read on to learn about the current jumbo loan requirements and the process differs from getting a conventional mortgage.
Jumbo vs. Conforming Home Loans
A conforming mortgage must meet the loan limit set by the Federal Housing Finance Agency (FHFA). The FHFA oversees government agencies such as Fannie Mae and Freddie Mac, which buy mortgages and either hold on to them or package them into securities and sell them.
For 2023, conforming loans cannot exceed $763,600 in Sacramento County for a single-family home. Anything over that limit will be considered a non-conforming loan. You can find the conforming loan limits for each state and county in the United States on the FHFA Loan Limit List.
Jumbo loans are non-conforming loans for amounts greater than the FHFA limits allow. Sacramento’s 2023 jumbo loan limit starts at $763,601 and goes up to $3 million to $6 million.
How to Qualify for a Jumbo Loan in California
Does all that sound extremely complicated? It’s really not: Getting a jumbo loan will require you to go through the same process you would to obtain a conforming loan. You’ll still need to make a down payment, obtain an appraisal, and pay fees.
However, these larger loans do come with a more stringent vetting process. This includes:
A higher credit score: Jumbo loans typically require a higher credit score than conforming loans. With a conforming loan, the minimum FICO score is usually about 620. For a jumbo loan, expect the minimum to be about 680.
A larger down payment: Depending on your credit score, a down payment of 20% to 30% may be required for a jumbo loan. But some mortgage lenders offer low down payment jumbo loans that allow you to put as little as 5% down.
A lower DTI: Your debt to income (DTI) ratio is a measurement used to determine your cash flow. It is calculated by dividing your total monthly debts by your total monthly gross income. A DTI ratio may go as high as 50% when qualifying for a conforming loan, but a jumbo loan will require a bit lower DTI, usually 43% or lower.
A higher reserve: You’ll need to provide sufficient documentation, including bank statements, pay stubs, and W-2 forms, to prove that you can afford the higher mortgage payments that will come with a jumbo loan. You may also need to provide proof of liquid assets.
A higher interest rate: Historically, jumbo loan rates have been higher than comparable conforming loan rates, but that gap has now closed. Recently, jumbo rates have been the same as or lower than their conforming counterparts. Your credit score and the current housing market will determine your exact rate.
A second appraisal: Some homes may require a second appraisal to ensure accuracy.
Other Options for Jumbo Loans in California
There are a few other financing options when it comes to purchasing a home with a jumbo loan in California.
For qualified veterans, VA loans don’t typically require a down payment, regardless of the loan amount. This is an incredible benefit to getting a VA loan!
FHA loans are known for offering buyers an opportunity to purchase their homes with a lower credit score or less cash available for a down payment. But an FHA jumbo loan does have stricter requirements than a regular FHA loan.
If you’re considering buying a home that will require a jumbo mortgage, or if you want to refinance an existing jumbo loan in the greater Sacramento area, give us a call at 916-465-6639. Our jumbo loans come with great rates and offer maximum flexibility for your high-end home purchase.
This blog was previously updated from its original publish date of October 8, 2020.