What is a Jumbo Loan?

If you’re shopping for a home and come across the term jumbo loan, do you know what it means? Whether you’re buying a luxury home, a property in a high-cost area, or just need a larger loan amount than conventional loan limits allow, jumbo mortgages could be exactly what you need.

What is a Jumbo Loan?

A jumbo loan is a mortgage that exceeds the conforming loan limits set by Fannie Mae and Freddie Mac, which are the two government-sponsored enterprises that buy mortgages from lenders. These limits vary by location, but in most parts of the U.S., the 2024 conforming loan limit was $766,550 for a single-family home. In high-cost areas, such as parts of California, the limit can be as high as $1,149,825.

If you need a mortgage that’s larger than these limits, you’ll need a jumbo loan, which is considered a non-conforming loan because it doesn’t meet Fannie Mae and Freddie Mac’s guidelines.

Why Would You Need a Jumbo Loan?

You might need jumbo mortgage loans if:

• You’re buying a high-value home that exceeds the conforming loan limits.

• You’re purchasing in an expensive real estate market where home prices are higher. The Los Angeles area can have high housing prices, but Peregrine Financial is a top mortgage lender in California and can help buyers get the right mortgage for them, even with a low credit score.

• You want to finance a luxury property with a single loan rather than multiple loans.

Since home prices have been rising steadily, more borrowers are finding themselves in the jumbo loan category, even if they aren’t necessarily buying a mansion.

Jumbo Loan Requirements

Because jumbo loans are riskier for lenders (since they aren’t backed by Fannie Mae or Freddie Mac) or maybe even the Federal Housing Finance Agency (FHFA), they have stricter qualification requirements compared to conventional loans. Here’s what you’ll typically need to qualify:

1. Higher Credit Score

• Most lenders require a credit score of at least 700-720 for a jumbo loan.

• Some may allow scores as low as 680, but this often comes with higher interest rates.

2. Larger Down Payment

• While some jumbo loans allow for 10% down, most require 20% or more.

• A larger down payment reduces the lender’s risk and can help you secure better terms.

3. Lower Debt-to-Income Ratio (DTI)

• Most lenders require a debt-to-income ratio of 43% or lower, meaning your total monthly debt payments (including your mortgage) should not exceed 43% of your gross monthly income.

4. Strong Cash Reserves

• Lenders may require you to have 6-12 months of mortgage payments in savings after closing.

• These reserves show lenders that you have the financial cushion to cover payments in case of emergency.

5. Detailed Income and Asset Documentation

• You’ll need to provide extensive documentation, including tax returns, W-2s, bank statements indicating cash reserves, and investment account statements.

• Self-employed borrowers may need to provide additional proof of income, such as business tax returns.

Jumbo Loan Interest Rates & Terms

Many borrowers assume that jumbo loans always have higher interest rates than conventional loans, but that’s not always the case. In some instances, jumbo loans may even have comparable or lower rates than conforming loans, depending on market conditions.

Typical terms for jumbo loans include:

• Fixed-rate options (15, 20, or 30 years)

• Adjustable-rate mortgage (ARM) options (5/1, 7/1, or 10/1 ARMs)

At Peregrine Financial, our expert California mortgage lenders can educate you on jumbo loan limits, conventional mortgages, and even help you get a better idea of your estimated monthly payment.

Jumbo Loans vs. Conforming Loans: Key Differences

Feature	Jumbo Loan	Conforming Loan
Loan Limits	Exceeds $766,550 (or local limit)	Up to $766,550 (or local limit)
Credit Score	700+ typically required	620+ typically required
Down Payment	10-20% or more	As low as 3-5%
DTI Ratio	43% or lower preferred	Up to 50% sometimes allowed
Reserves	6-12 months of payments	2-3 months of payments

Pros and Cons of Jumbo Loans

Pros:

- Allows you to buy high-value homes without multiple loans- May have competitive interest rates- No private mortgage insurance (PMI) required if you put 20% down- Available for primary, secondary, and investment properties

Cons:

- Stricter qualification requirements- Higher down payment needed- More extensive documentation required- May have slightly higher interest rates than conforming loans

How to Apply for a Jumbo Loan

If you think a jumbo loan is the right fit for your home purchase, here’s how to get started:

1. Check Your Credit Score – Aim for 700 or higher to qualify for the best rates.

2. Determine Your Budget – Calculate your down payment, reserves, and income requirements.

3. Find a Lender Specializing in Jumbo Loans – Not all lenders offer jumbo loans, so work with one experienced in this type of mortgage.

4. Get Pre-Approved – A pre-approval letter will show sellers you’re a serious buyer.

5. Gather Your Documents – Have your tax returns, pay stubs, bank statements, and other financial records ready.

6. Start House Hunting – Once pre-approved, work with a real estate agent to find your ideal home.

7. Close on Your Home – After your loan is approved, complete the closing process and get your keys!

California Home Loan Experts

A jumbo loan is an excellent option for borrowers looking to purchase a high-priced home. While it has stricter qualification requirements than conforming loans, it offers flexibility, competitive rates, and the ability to finance luxury properties without needing multiple mortgages.

If you’re considering a jumbo loan, reach out to one of our expert mortgage lenders today.

Alex Shahin: ashahin@peregrinefin.com

Anna Shaterkin: ashaterkin@peregrinefin.com

Lynette Valencia: lvalencia@peregrinfin.com