Jumbo Mortgage Loans in California

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Below avg. 580-619

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Irina Dyakun, CEO

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).

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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.

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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

  1. 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.
  2. Borrowers can get the mortgage at the lowest interest rates, and there is flexibility in terms like adjustable-rate and interest-only repayment.
  3. 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

  1. 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.
  2. 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.

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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.

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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.

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