When buying a high-priced home, not all mortgage products are created equal. While conventional and government-backed loans have similar processes, there are important distinctions between them and jumbo loans. 

A jumbo loan is a mortgage that exceeds the limit set by the Office of Federal Housing Enterprise Oversight. In 2023, this limit was $726,200 for most states. The higher dollar amount and unique name are just the beginning of what sets jumbo loans apart. 

You’ll need to meet more stringent financial requirements to qualify for a jumbo loan. Unlike conventional mortgages, jumbo loan applicants typically need a minimum credit score of 720 or higher. Additionally, a 10-20% down payment is typically required, compared to the flexible options available with conventional and government-backed loans. This larger down payment helps protect investors from potential fluctuations in the value of luxury and high-priced properties. 

Your debt-to-income ratio (DTI) is another factor that jumbo loan investors pay close attention to. A lower DTI ratio is crucial for approval and can lead to a more favorable interest rate. A DTI limit of 38 to 45 percent is typically required for jumbo loans. 

One unique aspect of jumbo loans is the requirement for cash reserves. Lenders may ask you to have 6 to 12 months of mortgage payments saved up, with at least half of that amount being readily accessible. This helps assure lenders that you can handle the financial responsibilities of a jumbo loan. 

If you’re in the market for a high-priced home that exceeds conforming loan limits, a jumbo loan may be your best bet. However, working with a knowledgeable and experienced loan officer who can guide you through the process is crucial. Don’t miss out on your dream home – explore the world of jumbo loans today.