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Jumbo mortgage rates: Jumbo loan rates and requirements for 2020

Peter Miller
The Mortgage Reports contributor

Jumbo loan rates make high-priced home buying possible

Jumbo mortgages are not just for the rich and famous.

With home prices rising nationwide — and many high-cost areas getting even more expensive — a jumbo mortgage can make sense for many who may not have considered one before.

And a jumbo loan may be surprisingly affordable.

Jumbo mortgage rates are often even lower than conforming loan rates. But with some lenders they’ll be higher. So you have to do your due diligence and shop around for the best jumbo mortgage rate you can get.

Check your jumbo loan rates (Nov 29th, 2020)

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What is a jumbo loan?

Conventional or ‘conforming’ loans (those backed by Fannie Mae and Freddie Mac) come with loan limits. These are set by FHFA (the Federal Housing Finance Agency) and typically change at the start of each year.

A jumbo mortgage or ‘jumbo loan’ is simply a mortgage with a loan amount that’s larger than today’s conforming loan limits allow.

The conventional loan limit for 2020 is $510,400 in most parts of the country. So a jumbo loan is any mortgage with a loan balance exceeding $510,400 in those areas.

Note that loan limits are expanded in certain areas of the country that have especially high home prices. These are primarily large metro areas where home values have appreciated quickly over the years.

The full range of conventional loan limits for 2020 are as follows:

  Lower-Cost Area High-Cost Area (Max Loan Limit)
1 Unit $510,400 $765,600
2 Units $653,550 $980,325
3 Units $789,950 $1,184,925
4 Units $981,700 $1,472,550

While loan limits are set in stone, home prices are not.

The result is that expensive homes cannot be financed with typical loans. What do borrowers do? They finance and refinance with jumbo loans, where loan limits don’t apply.

As of January 1st, the Fannie Mae and Freddie Mac loan limits are scheduled to change. 

Jumbo mortgage rates

It might seem as though jumbo mortgages would have jumbo rates, but that’s not necessarily the case.

Just like other mortgages, jumbo rates move up and down every day. Sometimes they’re higher than 30-year conforming loan rates, and sometimes they’re lower. 

According to Andy Walden, Economist and Director of Market Research at Black Knight, in September 2019 conforming loans were priced at 3.96% on average.

Jumbo mortgages were less expensive at, 3.59% on average.

And in September 2020? The two were neck-and-neck.

According to Walden, both conforming and jumbo loans were priced at just 2.98% at that time.

For those who qualify, a jumbo loan near or under 3% is a rare opportunity to lock in financing for high-priced real estate at a much lower rate and monthly payment than usual.

Check your jumbo loan rates (Nov 29th, 2020)

How to qualify for a jumbo mortgage

Of course, if you’re getting an extra-large mortgage, lenders want to be extra sure you can afford the loan payments.

As such, jumbo loans have higher qualifications than other mortgage programs.

Typical requirements to qualify for a jumbo mortgage include:

  • A credit score of at least 700
  • A clean credit report
  • A down payment of at least 10 percent, in most cases
  • A debt-to-income ratio below 45 percent
  • Cash reserves to cover 6-12 months of future mortgage payments
  • Income and employment verification

As with all loan types, lenders get to set their own requirements for jumbo loans. Some may be even stricter than what’s shown above — requiring a down payment of 20% or a credit score above 720, for example.

But some lenders are also more lenient.

In today’s mortgage market it’s possible to find jumbo loans with as little as 5 percent down, which would have been nearly impossible in the past.

It may even be possible to find a jumbo loan with a down payment below 20% and no mortgage insurance. However, most low-down-payment jumbo loans will require PMI, just like conforming loans.

The trick is to shop around and find what you need.

Especially for jumbo loans, which aren’t regulated by any government agencies, you’re likely to find vastly different loan programs catering to different borrowers.

Find the one that fits your needs, and you’ll be able to get the best loan terms and a low jumbo mortgage rate for your situation.

Verify your jumbo loan eligibility (Nov 29th, 2020)

Types of jumbo loans

Home buyers and refinancing homeowners can choose the type of jumbo mortgage loan that works best for them. 

  • A jumbo fixed-rate mortgage has a rate and payment that stay the same over the life of the loan, unless you decide to refinance
  • A jumbo adjustable-rate mortgage, on the other hand, only has a fixed interest rate for the first few years (typically 5, 7, or 10). After that, the rate and monthly payment are subject to change each year
  • A jumbo cash-out refinance allows the homeowner to refinance their current mortgage, take cash out at closing, and likely secure a lower interest rate at the same time

Where can I get a jumbo loan?

Not everyone needs a jumbo loan, but for those who do such financing is widely available. Most major lenders offer them, although rates and requirements will vary by company.

Walden told us that as of August, jumbo mortgages represented 3.28% of all new loans. However, because of their size, jumbo loans also represented 11.61% of all originated loan balances.

Lenders, of course, like bigger loans because of their attractive economics. So you’re not likely to have trouble finding one if you need it.  

How jumbo is jumbo?

If you need a loan for more than $510,400 then in most areas you’re likely in jumbo financing territory. But how high can you go?

Let’s just say there’s no reason to worry about maxing out a jumbo loan — if you’ve got the cash to pay for it.

The Los Angeles Times reported in 2017 that Jay-Z and Beyoncé paid $88 million for a home. After the $35.2 million down payment (40%) they financed the rest with a $52.8 million mortgage. 

In August 2017 the typical mortgage rate was 3.88%. We don’t know their exact loan terms, but if you borrow $52.8 million over 30 years at 3.88% the monthly payment for principal and interest is $248,436. Taxes and insurance are extra…

There may be even bigger mortgages out there. The point is that if you’ve got the cash, security, and credit, lenders are likely to welcome your jumbo business.

Why jumbo mortgage rates can be lower than other loans

There are several reasons why jumbo rates are generally priced in the same range as the loans being sold to Fannie Mae and Freddie Mac.

When lenders sell loans to Fannie Mae and Freddie Mac they have to pay so-called guarantee fees (g-fees). Those fees are a cost to lenders, but borrowers typically end up paying them in the form of higher rates.

Jumbo loans are not sold to Fannie Mae and Freddie Mac because they exceed loan limits. The result is that jumbo loan lenders do not have to pay the related g-fees. That’s a direct saving for jumbo mortgage borrowers.

Also, if a bank wants your business, jumbo rates can be remarkably attractive.

For example, if you can bring business accounts and lending needs to a bank, maybe a low-rate jumbo loan can be part of the package. 

Verify your jumbo loan eligibility (Nov 29th, 2020)

Why jumbo mortgage can be higher than other loans

A jumbo loan is large by its very nature. It inherently represents more risk to a lender than a standard-size FHA loan, VA loan, or conforming loan. More risk pushes interest rates higher.

That’s not all.

Jumbo loans do not have to follow conforming mortgage rules. That means not only can jumbos be bigger than loan limits might allow, but other standards can also be different.

For example, a lender might be okay with a higher debt-to-income ratio or accept a lower credit score. But the more you need a lender, the more likely the lender will want something in return.

That “something” is usually in the form of a higher jumbo mortgage rate, additional fees, a larger down payment, or maybe two appraisals rather than one. 

And sometimes lenders want more.

In July 2020, for example, CNBC reported that “Wells Fargo [was] requiring new customers to bring at least $1 million in balances if they want to refinance a jumbo mortgage, up from a previous level of $250,000, according to people with knowledge of the policy.”

This happened during the coronavirus pandemic, when economic uncertainty added extra risk for borrowers and lenders alike.

It’s just one example of how the overall economy can affect mortgage interest rates for better or for worse — jumbo loan rates included.

What are today’s jumbo mortgage rates?

Mortgage and refinance rates are low for all loan types right now.

If you have strong credit and a sizeable down payment, you may be able to qualify for a jumbo mortgage rate equal to or even lower than today’s average rates.

Verify your new rate (Nov 29th, 2020)