Jumbo Mortgage Loans in California
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What type of property are you refinancing?
Single Family
Multifamily
Condominium
Townhouse
How will this property be used?
Primary Residence
Vacation Home
Investment Property
Estimate credit score
Excellent 770+
Good 660-719
Avg. 620-659
Below avg. 580-619
Poor <579
What type of property are you purchasing?
Single Family
Multifamily
Condominium
Townhouse
Are you a first-time home buyer?
Yes
No
How will this property be used?
Primary Residence
Vacation Home
Investment Property
Estimate credit score
Excellent 770+
Good 660-719
Avg. 620-659
Below avg. 580-619
Poor <579
Final Step
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Summary
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What is a Jumbo Loan?
If you want to buy a property in California that costs more than $822,375, you should go for a jumbo loan. Jumbo mortgages are loans that exceed the size limit set by Freddie Mac and Fannie Mae (home mortgage government-sponsored companies).
Jumbo loans are large loans that are not insured at the governmental level. The limit amount of jumbo loans in California varies among countries, also it depends on the market value of the property of that area. The terms, requirements, and implications of tax of jumbo loan slightly vary from a conventional loan.
The federal housing finance agency FHFA changes this conforming limit every year. The jumbo loan, also known as a non-conforming conventional loan, might be risky for lenders because FHFA does not insure this loan. Like the traditional loan, lenders’ interest rates may differ for a jumbo loan.
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What are the Pros and Cons of Taking a Jumbo Loan?
Through the non-conforming mortgage, you can buy investment properties or vacation houses that can be the source of long-term income. Along with this, there are several other pros of a jumbo mortgage. But for taking the maximum benefits, you should know both the bright and dark sides.
Benefits of Jumbo Loans
- The first and the most eye-catching advantage of this loan is the large money available to you. You can buy a luxury property at a highly competitive location.
- Borrowers can get the mortgage at the lowest interest rates, and there is flexibility in terms like adjustable-rate and interest-only repayment.
- The down payment, the payment made by the borrower to obtain a loan, or the upfront payment of the jumbo loan is quite low compared to a conforming mortgage.
Cons of Jumbo Mortgage
- The high credit score is another big flaw of this type of loan. The minimum credit score to qualify for a non-conventional loan is 700 and is considered the lowest FICO score in the jumbo mortgage market.
- A borrower landing a jumbo loan should have a high yearly income and not have much debt. In other cases, you may be disqualified.
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How to Qualify for a Jumbo Loan?
If you want to buy a property in Los Angeles or California that costs a few million dollars and your current bank balance does not support this investment, then a jumbo loan would be best. As the loan size is bigger and not guaranteed by Freddie Mac and Fannie Mae, it is risky for lenders. Considering the risk, the terms and policies of non-conforming mortgages are vastly different from conforming loans.
Credit Score
For qualifying a jumbo loan, the borrower’s credit score should be higher than 700. The reason for setting this high FICO score is the large loan amount. The value of credit score increases with the increase in the loan amount. For instance, you must have a credit score of 720 to get a loan of 1.5 million dollars or a 740 credit score for up to a 2 million dollar loan.
Documentation
You need to show extensive documentation to your lender to verify your assets. The documents of a tax return of a year or two, proof of all liquid and non-liquid assets, a bank statement of half a year, and w2 tax forms might be required for a jumbo loan.
Appraisal
An appraisal is an act of accessing the true worth of the property. This assessment is needed for approving all types of home loans. The appraisers are professional individuals who estimate the unbiased rates of the property. It costs around $300 to $400. Like traditional loan jumbo loan approval also needs appraisal, but in this case, most lenders ask for a second appraisal.
Additional Closing Fees
After finalizing the deal, you also have in-hand cash to pay the closing cost that includes fees of attorney and recording fees. This will collectively form ~2% of the property you will mortgage.
Cash Reserves
It would be best to show cash reserves and liquid assets to get the loan. Your loan amount decides how much income you have to qualify for a mortgage. A borrower must have a twelve months mortgage payment reserve. Otherwise, you will offset initially. A high annual income or cash reserves can help you get the mortgage at low interest because the lender feels confident to pay you. The lender also checks your liquid assets, such as bonds, funds, lifetime insurance, and saving accounts, along with the cash reserve.
Debt to Income Ratio
Debt to income ratio DTI is the percentage of the amount you use to pay the debt from your overall income. Your lender also checks this ratio to assess your previous mortgage record. The DTI ratio to qualify for a non-conforming loan is ~45%.
Down Payment
The value of the down payment may vary from lender to lender. You can shop for the lender who charges low-down remittances. While shopping for lenders, keep in mind that some lenders charge PMI with a down payment to increase the monthly payment rate.
The current average down payment is 20%. For example, if you are mortgaging $900,000 with a 3% interest rate, you have to pay $180,000 as a down payment.
Applying for a Jumbo Loan in California
The non-conforming or jumbo loan is the one that is issued for buying properties that cost over $822,375 (depends on the county). To qualify for a jumbo loan, you should have a high credit score, a large cash reserve. The borrower also needs to have some liquid assets to show his lender, along with the cash. This loan is not FHFA insured, so it is risky for the lender, but it benefits the borrower.
If you need help figuring out if the jumbo loan is right for you, our Los Angeles brokerage team will gladly assist you with calculations and the ideal loan option for your situation.
Jumbo Mortgage Loans in California FAQ
What is a jumbo mortgage loan?
A jumbo loan is a type of mortgage that exceeds the Federal Housing Finance Agency’s set conforming limits. The conforming limit on loans for a single-family residence has been kept at $726,200 for most areas in California, except for high-cost areas. Jumbo loans work great for purchasing luxury homes or properties in highly competitive real estate markets where home prices are higher than these imposed limits.
How do jumbo loans differ from conventional loans?
Jumbo loans vary from conventional loans in several ways:
- Loan amount: Jumbo loans are for amounts above the conforming loan limit.
- Qualification requirements: Much stricter on credit scores, income, and assets.
- Interest rates: Often higher than conventional loans due to increased risk.
- Down payment: Larger down payment requirements, often at least 20%.
What are the eligibility requirements for a jumbo mortgage loan in California?
To qualify for a jumbo mortgage loan with ID Mortgage Broker, you typically need to have:
- High credit score: Usually at least 700; although some lenders may require even higher.
- Low debt-to-income ratio: Preferably below 43%.
- Significant cash reserves: Many months’ worth of mortgage payments saved.
- Proof of income: Stable and high income, confirmed via tax returns, W-2s, and bank statements.
- Large down payment: Normally 20% or more of the home purchase price.
What documentation is required to apply for a jumbo loan?
The documentation involved in a jumbo loan includes:
- Income verification: Recent pay stubs, tax returns, W-2s, or 1099s, in case of self-employed borrowers
- Asset statements: Bank statements and investment account statements to verify cash reserves
- Credit report: A detailed credit history to check on creditworthiness
- Employment verification: Proof of stable employment and income
- Appraisal: A professional appraisal of the property to determine market value.
Are there specific down payment requirements for jumbo loans?
Yes, jumbo loans tend to require a larger down payment than conventional ones. Most lenders require at least 20% down, but some may ask for even more depending on the size of the loan and the borrower’s overall financial picture. A more substantial down payment may grant access to better interest rates and terms.
How do interest rates for jumbo loans compare to those for conventional loans?
Because the lender is taking on more risk, the interest rates for jumbo loans are usually higher than those of conventional loans. The actual rate you’ll get depends on your credit score, the size of the loan you’re taking out, your down payment, and your overall financial picture. Shopping around for a rate and comparing offers from multiple lenders is essential.
Can I use a jumbo loan for investment properties or second homes?
Jumbo loans can be used to purchase investment properties and second homes. One would expect that the eligibility criteria for these properties will be even tighter-fisted than those for a primary residence. Lenders can demand larger down payments, better credit scores, and greater cash reserves for these properties.
What are the potential drawbacks of obtaining a jumbo loan?
Some disadvantages of jumbo loans include the following:
- Higher interest rates: Jumbo loans typically have higher interest rates than conforming loans.
- Stricter requirements: More stringent credit score, income, and cash reserve requirements.
- Larger down payments: Often require at least 20% down, which can be a significant financial burden.
- Limited availability: Fewer lenders offer jumbo loans, so shopping around is essential.
How do I find the best jumbo loan rates in California?
How to find the best jumbo loan rates:
- Compare multiple lenders: The way to compare the rates and terms is to get quotes from more than one lender.
- Improve your credit score: Higher credit ratings may offer better rates.
- Increase your down payment: A large down payment could make the terms of your loan more favorable.
- Consult ID Mortgage Broker: Let our experts guide you through the market to find the best options for your financial situation.
If you would like expert help with your personal needs, then ID Mortgage Broker is not the one to hesitate. We’ll strive to find the perfect jumbo mortgage loan for your situation. Call us today at 323-741-5858, or come and visit our office: 13317 Ventura Blvd #H, Sherman Oaks, CA 91423.
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