Jumbo Loan Limits And Requirements For 2024: A Guide
January 24, 2024 6-minute read
Author: Dan Rafter
Need an extra-large mortgage to buy a more expensive home? Then you might need to apply for a jumbo loan, a loan for more dollars than is allowed with traditional conforming mortgages.
But how much can you borrow before you need a jumbo loan? That changes each year, according to limits set by Federal Housing Finance Agency (FHFA).
What Are Jumbo Loans?
Borrowers turn to jumbo loans when they need to finance residential real estate that is too expensive for conforming loans. A jumbo loan is a type of non-conforming loan because it is for a larger amount of money than the conforming loan limits set each year by the FHFA.
A non-conforming loan is riskier for lenders. In the case of a jumbo loan, lenders are loaning a larger amount of money. If borrowers stop making their payments on jumbo loans, the lenders that originated these mortgages could take a larger loss. To make up for this risk, most lenders require that borrowers come up with a larger down payment when applying for jumbo loans. They also typically charge a higher interest rate.
How Do Conforming Loan Limits Influence Jumbo Loans?
Each year, the FHFA sets its conforming loan limits. These are the limits on the size of a mortgage loan that the federally backed home mortgage companies of Fannie Mae and Freddie Mac are willing to buy or guarantee.
When buyers want to finance the purchase of a home with a price tag higher than these conforming loan limits, they’ll need to apply for a non-conforming jumbo loan. The exact conforming loan limit varies by county, with some higher-cost areas of the country having higher loan limits.
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What Is The Jumbo Loan Limit For 2024?
While jumbo loan limits vary by lender as far as the maximum they will lend, the question most borrowers want to know is when does a loan become a jumbo loan. The FHFA set the conforming loan limit for one-unit properties for most part parts of the United States at $766,550 for 2024, a jump of $40,250 from the conforming loan limit of $726,200 in 2023.
This means that in most parts of the country, if you need to take out a mortgage for more than $766,550 in 2024, you’ll need to apply for a jumbo loan. Loan limits are also higher when you buy a 2 – 4-unit home.
Depending on where you are buying, though, the conforming loan limits can be higher than $766,550 for a single unit.
Conforming Loan Limits By State – When You’ll Need A Jumbo Loan
In most states, the conforming loan limit will be the $726,200 mandated by the FHFA. There are some states, though, in which the conforming loan limit is higher, and you can take out a larger mortgage before needing a jumbo loan.
The FHFA identifies parts of the country in which housing costs are particularly high. In certain high-cost areas, the conforming loan limit can be as high as $1,149,825. Many of these high-cost areas are in states such as California, New York, Florida, Massachusetts and Maryland. This means that there are some parts of the country in which you can take out a mortgage for more than $1 million and still have it be considered a conforming loan.
Two states in particular, Alaska and Hawaii, always have loan limits set at the FHFA's ceiling for the entire country – $1,149,825 for one-unit properties.
How To Find Your Local Jumbo Mortgage Limit
How much can you borrow in your county before needing a jumbo loan? You can find out by visiting the FHFA conforming loan limit map. Each year, the agency publishes an updated map listing the conforming loan limits in each state.
The map is color-coded according to loan limit values, with counties in which the conforming loan limit is $766,550 colored gray. There are also pockets of color for counties in which this limit is $766,551 – $950,000, $950,001 – $1,149,824 and exactly $1,149,825.
Jumbo Loan Borrower Requirements
Lenders vary and will have different requirements for jumbo loans. One of the biggest differences between lenders is the maximum loan amount they'll be willing to back. At Rocket Mortgage®, maximum limit for jumbo loan is $3 million. For VA jumbo loans, the maximum limit is $2.5 million.
In general, though, they will require a larger down payment and higher credit score for borrowers taking out larger mortgage loans. That’s because lenders are taking on more of a risk when lending more dollars.
- Down payment: How much of a down payment you will need depends on your lender. Most require larger down payments for jumbo loans. It’s not unusual for lenders to require a down payment of at least 20% for these riskier loans. If you are taking out a jumbo loan of $900,000, then, you might need a down payment as high as $180,000.
- Credit score: You’ll generally need a higher credit score, too, when applying for a jumbo mortgage. How high depends on your lender, but some might require a FICO® Score of 720 or higher for borrowers looking for jumbo loans.
- Debt-to-income ratio (DTI): Your debt-to-income ratio, or DTI, matters, too. Again, lenders will vary, but most want your total monthly debts, including your new mortgage payment, to equal no more than 43% of your gross monthly income.
- Loan-to-value ratio (LTV): Your loan-to-value ratio, often referred to as your LTV, is a measure of your mortgage loan's size compared to the value of your home. To figure out your LTV, divide your loan's balance by its appraised value. Say you buy a home with an appraised value of $900,000. If you buy the home for that amount and come up with a 10% down payment -- or $90,000 -- you'll take out a mortgage of $810,000. Divide that $810,000 by your home's current value of $900,000 and you get an LTV of 90%.
Is that LTV too high when you apply for a jumbo loan? That depends. Lenders might want a lower loan-to-value ratio when you apply for one of these larger loans. Again, this varies by lender. Some lenders, though, might want your loan-to-value to be no more than 80% when you are taking out a non-conforming jumbo loan.
Originators may also look at your cash reserves. Lenders want to make sure that you can keep making your mortgage payments if you suffer a temporary drop in your monthly income. Because of this, they typically require that borrowers have enough cash saved up -- not counting the dollars that borrowers will spend on their down payment and closing costs -- to cover at least two or three mortgage payments.
When taking out a jumbo loan, though, you might need a higher amount of cash reserves. This will again vary by lender, but some might require that you have cash enough cash saved to cover at least 12 months of mortgage payments or more in some cases.
Jumbo Loan Interest Rates
As with conventional mortgage loans, you can take out a jumbo loan that has either a fixed or adjustable rate.
With a fixed rate, your interest rate will remain the same throughout the life of your mortgage loan. An adjustable-rate loan comes with a fixed period, usually 5 – 7 years, in which your interest rate won’t change. But after this period ends, you’ll enter your loan’s adjustable period in which your interest will rise or fall, usually once a year.
The benefit of an adjustable-rate loan is that you’ll typically start off with an interest rate that is lower than what you’d get with a fixed-rate mortgage. The risk is that once your loan enters its adjustable period, that rate will usually jump to a higher level. With a fixed-rate loan, there is less uncertainty.
To qualify for the lowest mortgage interest rates with your jumbo loan, you’ll need a strong credit score, a larger down payment and a low debt-to-income ratio. In a time of higher mortgage interest rates, any step you can take to improve your credit and finances will pay off with the lower monthly payment that comes with a lower interest rate.
Is A Jumbo Loan The Right Mortgage For You?
If you are taking out a mortgage for an amount higher than the FHFA’s conforming loan limits in your area, you won’t have many options but to apply for a jumbo loan. Make sure, though, that you can afford not only the higher monthly payments that come with a jumbo loan but the higher down payment and closing costs, too.
Make sure, you have enough money in your savings account to cover at least 12 months of your payments. This will boost the odds that lenders will accept your mortgage loan application.
If you want to avoid a jumbo loan, you might be able to finance the purchase of a more expensive home with an 80-10-10 mortgage, also known as a piggyback loan. Rocket Mortgage doesn't offer these. In this loan type, you take out two mortgages, one for 80% of the home’s purchase price and a second one for 10%. You then come up with a down payment equal to 10% of the home’s purchase price.
Keep in mind, some lenders do not accept or offer piggyback mortgages. That includes Rocket Mortgage®. It’s best to talk with your lender to see what your specific options are.
The Bottom Line
If you want to buy a more expensive home, you can apply for a Jumbo Smart loan with Rocket Mortgage today. Just remember that you’ll need a higher credit score and larger down payment to qualify for one of these loans.
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