What is a Jumbo Home Loan?

When you think of “jumbo,” you probably imagine something that’s massive. That would be accurate when describing a jumbo home loan. It’s a loan for a large amount of money—sometimes for millions of dollars. You may be interested in a jumbo loan if you plan to buy a luxury home or an investment property (such as a multi-unit apartment).

There are limits on how high a mortgage loan can be to protect the lender. This limit varies, but for a single-family home, it is currently $548,250 in 48 states ($822,375 in Alaska and Hawaii). In certain areas, it could differ as well (such as in high-dollar areas like Los Angeles, San Francisco, and New York City).

Anything above those numbers—also called conforming loan limits— is considered a jumbo loan. Jumbo loans have non-conforming limits, and because they carry a high risk for lenders, you’ll pay higher interest rates. 

Plus, jumbo home loans feature strict requirements. If you can’t make your payments, you’ll go into default and the lender will have to foot the bill. A property appraisal may be needed on the property to support the purchase price. The Empower Group can help you understand jumbo home loans in Texas.

Jumbo Home Loan Requirements

These high home loans are risky for lenders, so if you are interested in one, you’ll need to have a nearly perfect credit history and a high income. You’ll also need a lot of cash on hand. Based on your income and loan amount, you’ll usually need a down payment of at least 20%. You may need even more cash on hand before your lender approves you.

You will need a high credit score. For a loan of up to $1 million, you’ll need a credit score of at least 700. A score of 720 is needed for loans of up to $1.5 million. For loans of up to $2 million, a score of 740 will be required.

Debt-to-income ratio is another requirement. Lenders want to see that you have enough of a revenue stream to pay your bills. Your debt-to-income ratio can be calculated by dividing the amount you pay in bills by your monthly income. The lower, the better. To qualify for a jumbo loan, you’ll need a debt-to-income ratio of under 45%.

To qualify for jumbo home loans in Texas, you’ll also need to have consistent income. You may be asked for significant proof of income, such as several years’ worth of W-2s, 1099s, bank statements, investment account information, and tax returns. The lender may also want proof that your income is unlikely to change once you get the loan.

Other Considerations

Before applying for jumbo home loans in Texas, there are some things you should keep in mind. A jumbo loan comes with high closing costs. On a $500,000 loan, you may have to pay as much as $25,000 before you even get the proceeds of your loan.

Also, be prepared to have a lot of cash on hand. This may seem contradictory since the point of getting a loan is to have more money. However, lenders are taking a huge risk when offering you a jumbo loan. They want to make sure you have access to the money needed to make monthly payments. Therefore, you may be expected to have one year of mortgage payments in cash reserves. 

Jumbo loans are manually underwritten. Your lender will go through your entire credit history looking for anything that can disqualify you for a loan. They’ll be looking through your bank accounts and asking about your assets. They want to see very little debt. If you have a foreclosure or bankruptcy on your credit report, you’ll have a harder time getting a jumbo loan. You may be able to still qualify for one, though, especially if it happened a long time ago. Your lender may want more money down, though, or more documentation about your income.

Contact Us Today

Whether you want to buy a luxury home or investment property, you’ll need a lot of money. Jumbo home loans in Texas can help. These loans can provide you with more money than a regular home, so you don’t have to pay the full amount upfront. However, these loans are hard to get, as there are strict requirements involved. 

Do you qualify for a jumbo home loan? Contact The Empower Group today to start the application process.