Jumbo Loans: Guidelines for 2023

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What is a Jumbo Loan?

Jumbo loans are a type of conventional loan that exceed the Conforming Loan Limits that FHFA sets annually. They are used to finance more expensive or high-end properties. The baseline limit for 2023 is $726,200, which is used in most counties.

Jumbo Loan Limit 2023 by County

Jumbo Loans, also known as non-conforming loans, are mortgages with principal amounts larger than the conforming loan limits. The Federal Housing Finance Association (FHFA) sets conforming loan limits, and it outlines the maximum mortgage size for a specific area. Jumbo loans are too large to be bought by government-sponsored agencies, and they usually have a higher mortgage interest rate compared to conventional loans.

Jumbo loans, like conventional loans, can be offered as fixed-rate mortgages and adjustable-rate mortgages. Jumbo loans are much riskier to lenders because normally, lenders will sell a mortgage to Fannie Mae or Freddie Mac and their risk will decrease.

On the other hand, a jumbo loan cannot be sold to Fannie Mae or Freddie Mac, and it has a larger principal. If a borrower defaults on their mortgage, the lender could lose a considerable amount of money. This is why lenders may require additional proof of income and will charge a higher mortgage rate.

Jumbo vs Conventional Loan

Conventional loans are mortgages that are used by the average homebuyer, these mortgages can be conforming or non-conforming. “Conventional” is a broad term encompassing any non-government or private loans. Conforming mortgage fits the guidelines set by the Federal Housing Finance Association while a non-conforming mortgage does not meet the requirements. Conforming loans can be insured by government agencies such as Fannie Mae and Freddie Mac, whereas non-conforming home loans cannot.

Jumbo loans are non-conforming because they do not meet the requirements set by the FHFA. More specifically, they do not meet the conforming loan limit requirement, which states that the price of the home must be below a certain threshold for that specific area.

Conforming Loan Limits 2023

Jumbo Loan Rates

Using your credit report, financial history, and current financial situation, lenders will take their base mortgage rate displayed on their website and adjust it based on how risky of a borrower you are. Recently, jumbo loan rates have been very close to conventional mortgage rates. It might be useful to assess possible monthly payments with a jumbo loan calculator before choosing to get this type of loan.

Current Jumbo Mortgage Rates

^† While we try our best to get your the best rates, we cannot guarantee that they are always accurate. Casaplorer assumes no liability and provides no warranty for the accuracy of the information presented, and will not be held responsible for any damages resulting from its use. Rates shown are for informational purposes only and may differ by zipcode, county, and state. Estimated payments do not include taxes and insurance. Some state and county maximum loan amount restrictions may apply. Casaplorer is not endorsed or sponsored by any mortgage lender or government agency. For information regarding any of these rates, please contact the relevant mortgage lender.

Even though government-sponsored agencies do not insure jumbo loans, other financial institutions often do insure them. An individual borrower should expect higher mortgage rates on their jumbo loan.

Jumbo Loan Requirements

Jumbo loans have stricter eligibility requirements compared to conforming loans. Jumbo loans are not guaranteed by Fannie Mae & Freddie Mac and are larger than conventional loans, which increases the potential loss for the lender if the borrower defaults. Most requirements are similar to requirements for conventional loans but are slightly stricter:

• FICO Score - Since a jumbo home loan has a large principal, lenders require a minimum credit score of 700. The credit score requirement can vary depending on the size of the loan.

  Credit Score for a Jumbo Loan

  Loan Size	Minimum Credit Score
  Under $1,000,000	700
  $1,000,000 - $1,500,000	720
  Over $1,500,000	740

  A borrower of a jumbo loan needs a higher credit score because lenders need additional assurance that the home loan can be paid back. If a borrower does not have a good credit score, they can try other loan options for buying a home with bad credit.

• Minimum Down Payment - The minimum down payment on a jumbo loan is often at least 20% of the home purchase price. There are exceptional cases where a minimum down payment of 10% is allowed but not many lenders allow that. A borrower will be required to get private mortgage insurance when the down payment is less than 20%.
• Debt to Income (DTI) Ratio - A borrower must have a debt-to-income ratio (DTI) of less than 43%, and some lenders require it to be closer to 36%. This means that borrower’s monthly debt payments including student loan and credit card debt payments must be less than 36% of their gross monthly income.
• Cash Reserves - A borrower must have enough cash in their bank account to cover one year’s worth of mortgage payments. This requirement ensures the lender for 12 months of stable payments as there is limited risk for this period. Greater cash reserves increase a borrower’s chance of being approved by the lender.
• Documentation - Borrower’s employment, tax returns, and investment accounts documents will be required. Self-employed individuals may be required to show more documents depending on the lender.

Alternatives to a Conventional Jumbo Loan

There are a few alternatives to a conventional jumbo loan that eligible individuals may benefit from. The alternatives to conventional jumbo loans are offered by the Federal Housing Administration and the Department of Veteran Affairs. Both loan products have stricter requirements than conventional jumbo loans, but they usually have a lower interest rate and other favorable loan terms.

FHA Jumbo Loan

The Federal Housing Administration provides FHA Jumbo Loans to qualifying individuals through lenders. With an FHA jumbo loan, a qualifying individual can purchase a property with a down payment as low as 3.5%. Unlike regular FHA loans, the requirements for FHA jumbo loans are set by lenders, so they may vary depending on the lender. Some of the most common requirements set by the lenders for FHA jumbo loans are summarized in the following table.

FHA Jumbo Loan Requirements

VA Jumbo Loan

The Department of Veteran Affairs also provides their type of jumbo loan called VA Jumbo Loan. VA jumbo loans are available for eligible veterans and servicemen. These loans offer significant benefits compared to traditional jumbo loans available to the public. VA loans are known for their no down payment requirement, which means that an eligible buyer can get a VA loan and pay 0% down payment for the property.

VA jumbo loans also have that feature, which means that eligible buyers can still get a property paying 0% down payment even if their property is above the VA loan limits. Even though there is no set limit for VA jumbo loans, the limits and regulations of VA loans still apply, which means that the eligible person will have a debt-to-income ratio that cannot be surpassed.

Jumbo Loan Limits by State

Jumbo Loan Limit California

Real estate in California is one of the most expensive in the country. With a median home price of over $800,000 by the end of 2022, the regular conforming loan limit of $726,200 is not enough for home buyers. Conforming loan limits in California range from $726,200 to $1,089,300 for some high-cost areas.

High Cost Counties in California

These limits are often still not enough for many home buyers as luxury homes are not the only ones that need jumbo loans. In many California counties, many home buyers have no choice but to use a jumbo loan.

Jumbo Loan Limit Texas

Among the states with expensive real estate, Texas is one of the more affordable states with a median home value of about $315,000 at the end of 2022. Most home buyers could get a comfortable home without exceeding the baseline conforming loan limit and having to get a jumbo loan. Every county within Texas has the baseline conforming loan limit for 2023 of $726,200.

Jumbo Loan Limit Florida

Florida is a well-known real estate location for potential home buyers because of its real estate opportunities. Florida has affordable housing and generally low cost of living. The median home price of a Florida home is about $405,000, which is considerably below the baseline conforming loan limit. This means that most home buyers in Florida do not have to get a Jumbo loan for their purchase.

Conforming loan limit in Florida is set to $726,200 for almost all counties. Only one county in Florida, Monroe County, has a conforming loan limit of $874,000. Florida offers jumbo loans of up to $2,000,000 with minimum down payments of as low as 5%, and they may not require private mortgage insurance in some cases.

Jumbo Loan New York

Falling slightly behind California, New York is another extremely expensive state for home buyers with a median home price just below $800,000 by the end of 2022. Most counties in New York have conforming loan limits of $726,200. Only 10 counties in New York have high-cost conforming loan limits of $1,089,300.

High Cost Counties in New York

Frequently Asked Questions

How to Get a Jumbo Loan?

The procedure for obtaining a jumbo loan is very similar to the conventional loan application process:

• Get Financial Documents in Order: The first step to obtaining a jumbo loan is to get your financials in order - credit score, savings, cash liquidity, debt, and income statements.
• Find a Lender: The next step is to find a mortgage lender; this is important as different lenders have different requirements and it is important to choose a lender that best fits your needs. You can use the services of a mortgage broker to help you attain the best rate from the lender.
• Pre-Approval: Once you choose a lender, the pre-approval process is the third step. A mortgage pre-approval is essential as it will give you an idea of the size of the jumbo mortgage and the price of the home you can afford.
• Eligibility: Once the application is submitted, your lender will determine your final eligibility for the jumbo loan.

Check how much you can get pre-approved for using our pre-approval calculator.

In What Cases Are Jumbo Loans Used?

Jumbo loans cater to expensive and luxury properties in locations where housing prices are rising at a rapid pace such as New York and Los Angeles. These loans are different from conforming loans and have stricter requirements and certain tax implications.

For example, if the conforming limit is $726,200 in a specific county and a mortgage is $750,000, then it has to be a jumbo loan as it is beyond the limit and too large to be bought by FHFA. This means that if the borrower defaults, the lender is not protected from any losses by Fannie Mae and Freddie Mac.

What Are Jumbo Loans Tax Implications?

Your mortgage interest payments can be claimed in your tax return as itemized deductions, but there are limits to the size of the mortgage and the amount that can be deducted. Before December 14th, 2017 the tax-deductible amount could be interest accrued on a mortgage of $1 million. Following the Tax Cuts and Jobs Act, the IRS reduced the deduction limit on interest to a mortgage size of $750,000. Therefore, any mortgage interest amount on debt greater than $750,000 cannot be claimed as an itemized deduction.

For example, if you have a jumbo loan of $1 million, and you accrue a total interest of $40,000 in the year, you will only be able to claim an itemized deduction on interest for $750,000 of your mortgage which is $30,000. The example shows that even though the total interest is $40,000, the maximum itemized interest deduction can only be $30,000 because of the $750,000 limit.

What is a High Balance Loan?

A high balance loan is a loan amount that exceeds the 2023 base loan limit of $726,200 but is below the higher loan limit of $1,089,300. High balance loans are still conforming loans as they are within the limits set by the FHFA and can be insured by Fannie Mae and Freddie Mac.

For example, if you are planning to buy a home in New York City, the loan limit is $1,089,300 as it is a high-cost area. To purchase a home, assume you need a mortgage loan of $800,000, this amount is greater than the average loan limit of $726,200 but less than $1,089,300, therefore, it is a high balance loan. In the same example, if you change the mortgage amount to $1,100,000 then it becomes a jumbo loan as it exceeds even the higher limit of $1,089,300.

^† While we try our best to get your the best rates, we cannot guarantee that they are always accurate. Casaplorer assumes no liability and provides no warranty for the accuracy of the information presented, and will not be held responsible for any damages resulting from its use. Rates shown are for informational purposes only and may differ by zipcode, county, and state. Estimated payments do not include taxes and insurance. Some state and county maximum loan amount restrictions may apply. Casaplorer is not endorsed or sponsored by any mortgage lender or government agency. For information regarding any of these rates, please contact the relevant mortgage lender.