What is a jumbo mortgage in California?
Jumbo Loans are a type of mortgage that’s used to finance high mortgage amounts, often for luxury homes. A jumbo loan is in the category of “non-conforming” loans, as it doesn’t conform to the requirements of Fannie Mae, Freddie Mac, and their regulator, the Federal Housing Finance Agency (FHFA).
Each year Fannie Mae, Freddie Mac, and FHFA, set a maximum amount for loans that they will buy from lenders. This maximum amount is known as the “conforming loan limit” (CLL). Loans above this amount are known as jumbo loans.
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In California, the jumbo loan limit varies based on the county. In most counties the CCL is $647,200 and may go as high as $970,800.
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How a jumbo loan works
Applying for a jumbo mortgage loan is the same as applying for any other mortgage loan. You will need to complete an application with a lender, and provide financial documentation of your employment, income, assets, and debt. The lender will use this information, and your credit score, to determine if you meet jumbo loan requirements for loan approval.
According to the credit bureau Experian®
, many lenders require a FICO®
Score of 720 or better for many jumbo loans. Most lenders look for a debt-to-income (DTI) ratio of no more than 43%. DTI is your total monthly expenses divided by your total monthly income before taxes. Lenders will calculate this to determine if you’ll have the funds to repay the loan.
Keep in mind that each lender will have their own qualifying criteria that borrowers must meet.
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Jumbo loan limits and rates in California
In California, the jumbo loan limit varies based on the county in which you're trying to buy a home. In most counties the CCL is $647,200 and may go as high as $970,800.
Rates for a jumbo mortgage tend to be higher than conforming loan rates. This is because lenders take on more risk when they give higher loan amounts. Recently, however, rates for a jumbo mortgage have gotten more competitive as conventional loan rates have risen.
For more info on jumbo loan limits in CA, please visit http://www.loanlimits.org/california/
Jumbo loan advantages:
- Higher loan limits. If you qualify for a jumbo loan, you can borrow more money and therefore purchase a more expensive home.
- Loan flexibility. Jumbos can be used to purchase primary residences, vacation homes, and investment properties.
- Loan options. There are numerous options including fixed-rate and adjustable-rate mortgages, as well a different term lengths.
Jumbo loan disadvantages:
- Higher interest. Jumbo loans usually have higher interest rates; however, the recent increase in traditional mortgage interest rates have made jumbos more comparable in cost.
- Credit score. A higher credit score is required than with some other mortgage loans.
- Closing costs. These costs may be higher based on the loan amount and lender requirements.
- Reduced tax benefits. According to the IRS, in most cases, you can deduct all your home mortgage interest. How much you can deduct depends on the date of the mortgage, the amount of the mortgage, and how you use the mortgage proceeds. Generally, you can deduct home mortgage interest on the first $750,000 ($375,000 if married filing separately) of indebtedness. However, higher limitations ($1 million or $500,000 if married filing separately) apply if you are deducting mortgage interest from indebtedness incurred before December 16, 2017.
- Harder to sell. Luxury homes that are more likely to require a jumbo mortgage may be harder to sell, especially in a rising interest rate market.
Jumbo mortgage requirements
Most lenders have similar jumbo loan requirements:
- Credit score. Lenders may require a FICO of 720 or higher.
- Income requirement. Borrowers aren’t required to earn a specific income amount, but you will need to show proof of income.
- Debt-to-income (DTI) ratio. Most lenders require a DTI of less than 43%.
- Cash reserves. Be prepared to show that you have one year of cash reserves saved to cover a year’s worth of payments. Reserves would cover the principal, interest, property tax and homeowners insurance.
- Documentation. You’ll be required to provide proof of income, tax returns, bank statements, and proof of assets and debts.
- Appraisal. The lender will require an appraisal of the home’s value. If the property is more than $1,000,000, the lender may require two appraisals.
How to get a jumbo loan
Start by gathering all the documentation you may need to provide the lender as part of the pre-approval or application process. You may choose to get pre-approved
for the loan, which will make your home search go smoother and make the mortgage application process quicker.
Are jumbo loans considered conventional?
A conventional mortgage loan is one that is not backed by a government agency (such as FHA, VA, or USDA). Therefore, while jumbo loans are non-conforming
, they are considered conventional.
Jumbo loans vs. conforming loans
As we mentioned earlier, jumbo loans are “non-conforming” loans because they don’t conform to the requirements of Fannie Mae, Freddie Mac, and their regulator, the Federal Housing Finance Agency (FHFA). These agencies don’t provide loans, but they do buy them on the secondary mortgage market.
Conforming loans are those that are conform to Fannie Mae and Freddie Mac guidelines and are below the conforming loan limit (CLL).
These terms are helpful to know, but do not affect your loan as far as your monthly repayments are concerned.
Learn more about the difference between conforming and non-conforming mortgage loans
Where to get a jumbo loan
Speak with a mortgage representative at your local credit union or bank where you currently do business. You may get favorable rates and terms by applying for a mortgage at a lender who already knows you and has your financial information in their system. CU SoCal can provide you with rates for a jumbo mortgage.
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Why savvy consumers choose CU SoCal
For over 60 years CU SoCal has been providing financial services, including mortgages, Home Equity Loans, HELOCs, car loans, personal loans, credit cards, and other banking products, to those who live, work, worship, or attend school in Orange County, Los Angeles County, Riverside County, and San Bernardino County.
Please give us a call today at 866.287.6225 today to schedule a no-obligation loan consultation with a CU SoCal Member Services specialist.
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