What Is a Jumbo Loan Mortgage? 

Dreaming big for your next home purchase? Whether you’re looking for more space, some extra amenities, or both, a jumbo loan may be a good option if you’re in need of a larger mortgage. 

A jumbo loan is the perfect type of mortgage for people who may be looking to purchase a home that’s more expensive than what a conventional mortgage might cover. It offers a lot of the same perks of a conventional mortgage, like a fixed rate and $0 application fee, but allows you to borrow above the limit of a conventional mortgage.  

If this sounds like a good fit for you and you’re ready to get started, apply online in just a few minutes. Not sure if a jumbo loan is what you’re looking for? Keep reading to learn more. 

Jumbo Loans Explained 

A jumbo loan, or jumbo mortgage, is a mortgage that exceeds the borrowing limits of a conventional loan or other traditional mortgages. Loan limits can vary year to year, so it’s best to stay up-to-date by checking the current limits through the Federal Housing Finance Agency. 

Jumbo Loan Requirements 

Because a jumbo loan gives you a higher borrowing limit than most loans, the requirements look a little different from your standard mortgage. You’ll want to make sure you have a good credit score before applying–think 720 or higher. Like any type of loan, the higher your credit score, the more likely you are to be approved. 

A debt-to-income ratio lower than 43% will also help your chances of being approved. When we’re reviewing a jumbo loan application, we want to make sure that the applicant isn’t overborrowing and stretching their income too far, and a low debt-to-income ratio demonstrates their ability to repay their debts. We’ll also ask for proof of income and cash reserves for this same reason–we want to be certain that the applicant can repay the loan. 

As far as down payments go, the larger the loan, the larger the down payment. Jumbo loans are no exception, especially because they’re bigger than your average home loan to begin with. Down payments for jumbo loans at Arkansas Federal usually start at 20%, but they could be higher than 20% depending on the applicant and property. 

We will also ask for an appraisal of the home in order to verify that it is worth the large amount we’d be loaning. The requirements for being approved for a jumbo loan will vary from case to case, but it’s a good idea to make sure you’ve got the basic requirements squared away before applying to make the process as smooth as possible. 

Pros and Cons of Jumbo Loans 

Like any major financial commitment, there are a lot of factors to take into consideration when you’re applying for a jumbo loan. But because a jumbo loan is a significantly larger amount of cash you’re committing to repaying, you’ll want to take an extra moment to think through whether it’s the right type of loan for you. 

Pros 

The most obvious reason to get a jumbo loan? It’s a higher loan amount, so it can help you finance a larger home loan than other types of mortgages allow. It also offers a similar interest rate to conventional loans, which hasn’t always been the case. In the past, jumbo loans have had higher interest rates than conventional loans, but they’ve evened out in the last few years. That means now might be a good time to make the jump if you’re thinking about a jumbo loan! 

Jumbo loans can also be a smart way to finance your property on a single mortgage, rather than taking out multiple loans to finance one property. 

Cons 

While jumbo loans can be a perfect fit for certain situations, there are some nuances to take into consideration, too. Compared to smaller home loans, a jumbo loan will call for more stringent credit and financial requirements. A higher credit score and sound finances give us, the lender, more confidence that the borrower is going to pay back the large loan we’re about to grant them. 

Because a jumbo loan is a higher dollar amount than your typical home loan, it’ll also come with higher closing costs. Closing costs aren’t as scary as they sound–they’re just the costs you’ll need in addition to a down payment when you’re closing on a home. Think of things like your appraisal, title insurance, and origination fees. Your closing costs will vary depending on the type of loan you choose, but the higher your loan amount, the higher your closing costs will be. You can expect to pay 3-6% of the home’s value for closing costs on any type of home loan, and since jumbo loans are so large, you can naturally expect to pay significantly more in closing costs. 

Stricter underwriting requirements are also typical when it comes to jumbo loans. Underwriting is the behind-the-scenes work that goes into verifying if an applicant is creditworthy and can be trusted to repay the loan. This process is a bit more involved with a loan as large as a jumbo loan, so expect the requirements to look a bit different than it would for a traditional home loan. 

Apply For a Jumbo Loan Today 

If you’re dreaming big for your next home purchase, a jumbo loan could be a great fit for your financial needs. Now that you have a basic understanding of what a jumbo loan is, how it differs from other types of home loans, and what you’ll need to qualify, you might feel ready to take the next step–and we can help! 

Talk to one of our mortgage lending experts about your financial situation and goals for your home, and they can help determine if a jumbo loan is right for you. If you’re ready to apply, you can do it in just a few minutes online with Arkansas Federal Credit Union. Your dream home might be closer in reach than you think!