What Is An FHA Jumbo Loan, And Should You Get One?

Mortgage amounts are often limited by a county’s loan limits, but jumbo loans can exceed these loan amounts and allow you to borrow more money toward the purchase of a pricier home. If you want a bigger loan along with a fairly low down payment, you can opt specifically for an FHA jumbo loan.

For various reasons, though, an FHA jumbo loan comes with additional requirements and stipulations. Let’s break down how an FHA jumbo loan works and how to qualify for one.

As noted, an FHA jumbo loan typically comes with a relatively relaxed down payment requirement and high borrowing limit for qualifying borrowers. Like other non-conforming loans, this government-backed mortgage operates outside of the mortgage standards observed by Fannie Mae and Freddie Mac.

While FHA jumbo loans allow you to borrow loan amounts outside of conforming loan limits, they’re specifically designed to prevent you from borrowing more than you need. Essentially, you can’t apply for a higher amount than a home’s purchase price and pocket the remaining money, except in the case of legitimate refunds related to the mortgage.

Borrower requirements for an FHA jumbo loan are similar to those for a standard FHA loan:

• You must have a minimum credit score of 580.
• Your debt-to-income (DTI) ratio should be 57% or under.
• The home must be a single-family (1 – 4 units) primary residence.
• You must pay an upfront and monthly mortgage insurance premium (MIP).

In addition to meeting standard FHA loan requirements, applicants must adhere to the following jumbo loan requirements:

• Lenders may require borrowers to have up to 12 months’ worth of cash reserves to back up their monthly payments.
• Jumbo loan home buyers will likely pay higher closing costs than the standard 3% – 6% of the purchase price.
• Depending on the FHA lender, jumbo borrowers may face higher FICO^® Score requirements.

FHA loan limits are set by the Department of Housing and Urban Development (HUD) and, like conforming loan limits, they can vary by county. Another factor affecting loan limits is the number of units in the property being purchased. A 4-unit home will have a higher loan limit than a 1-unit home, for example.

Loan limits for FHA jumbo loans will also depend on the lender or lending platform you go through, as well as the purpose of the loan. You can speak with a loan officer to learn your options in your current area and market.

FHA loans can offer competitive interest rates, especially compared to conventional loans. Similarly, FHA jumbo loan rates can often be lower than traditional jumbo rates when a borrower has good credit. Remember that FHA jumbo loans will also include a monthly MIP, though, so a lower rate doesn’t necessarily mean you’ll save money.

Take a look at our mortgage interest rate forecast for 2022 so you can know what kinds of rates to expect.

While an FHA jumbo loan can do you a lot of good, it’s best to also consider the drawbacks before committing to this kind of home loan. Here are the pros and cons of FHA loans, specifically FHA jumbo loans.

Pros

• Maximum loan limits for FHA jumbo loans extend outside of conforming loan limits.

• FHA jumbo borrowers have a lower down payment and more flexible credit score requirement than borrowers of traditional jumbo loans.

• An FHA jumbo loan may have lower interest rates than a traditional jumbo loan.

Cons

• Home buyers must purchase mortgage insurance and pay monthly MIPs for the life of the loan.

• Jumbo loan borrowers pay higher closing costs.

• Every county has a different maximum loan limit.

• Some lenders may have more rigid credit requirements for borrowers.

Alternatively, check out the Rocket Mortgage^® Jumbo Smart loan and see if this might be a better option for you. Our Jumbo Smart loan can allow you to buy a home outside conforming loan limits with a down payment as low as 10.01%, without having to buy private mortgage insurance (PMI).

Being able to purchase a more expensive home while saving on a down payment is an ideal option for some home buyers. It’s important to consider all pros and cons, though, and determine whether an FHA jumbo loan is the best choice for your situation. Compare rates from different lenders and inquire about your county’s maximum loan limits so you can get the best loan for your situation.

Want to see what rates and terms you’d qualify for with a mortgage? Start the initial approval process today with Rocket Mortgage.