If you’re considering purchasing a home in Houston worth significantly more than $650,000, you’re going to need to learn about jumbo loans. These loans are different from traditional mortgages because they’re designed for buyers of high-priced homes. The requirements for jumbo loans differ between lenders, but many have similar conditions for credit scores, debt-to-income ratios, down payment amounts, and cash reserves.
What Is a Jumbo Loan?
A jumbo loan is a type of mortgage homebuyers use for large purchases. Traditional mortgages, also called conforming loans, follow limits that the Federal Housing Finance Agency (FHFA) sets. Those loans have a ceiling; in 2022 lenders cannot offer more than $647,200 as a mortgage for a single-unit property. This $647,200 ceiling applies in every county in Texas, though some states with especially steep real estate markets, like Hawaii, have higher ceilings.
A jumbo loan, which is also called a non-conforming loan, is the kind of loan you’ll need if you require more than $647,200 to purchase your new single-unit house. Lenders will typically offer up to $3 million as a jumbo loan. Fannie Mae and Freddie Mac cannot purchase anything that falls outside the FHFA limit, which makes these loans riskier investments for lenders to take on. Qualifying for one is more difficult as a result. Jumbo loan interest rates are typically higher, too.
Jumbo Loan Qualification Requirements
Because jumbo loans aren’t subject to FHFA rules, lenders can set their own criteria for offering jumbo loans. These criteria can differ substantially between lenders. No matter where you look for your jumbo loan, you will need to be in good financial health to qualify. Here are some of the major requirements:
Credit Score
We ask for a FICO credit score of 700 or higher if you want to qualify for a jumbo loan. Some lenders ask for higher scores depending on the size of the loan and may want a score above 720 or 740 if you’re borrowing more than $2 million.
Debt-to-Income Ratio
Your debt-to-income ratio needs to be as low as possible. In Texas, your debt-to-income ratio cannot be higher than 45%, although you may find that some lenders have a lower maximum for that number. A better debt-to-income ratio can help you get better jumbo loan rates.
Cash Reserves
We require that you have cash reserves worth at least six months of mortgage payments. This means principal, taxes, and interest. You must provide financial documents showing evidence of these reserves.
Down Payment
The down payment for a jumbo loan is typically between 10% and 30% of the total cost. Most lenders will ask for a down payment of at least 10%, though some require a higher down payment for larger loans.
Property Appraisal
If you’re applying for a loan that exceeds $1 million, you may have to get a second appraisal on the house you want to buy. If your loan will exceed $2 million, you will need two separate appraisals.
Closing Costs
The closing costs associated with a jumbo loan are often much higher than those of a conforming loan. For this reason, many lenders will ask for proof that you can pay the closing costs and the first six months of your mortgage.
Financial Documents
Like with any mortgage, you’ll need to provide your lender with financial documents when applying for a jumbo loan. Lenders usually ask for your tax returns for the past two years, the past month’s pay stubs, bank statements for the past two months, and proof of other income, like investments. If you’re self-employed or own a business, you’ll need to provide profit-and-loss statements.
Property Type Requirements
You can buy investment properties, homes on land up to 40 acres, vacation homes, and multi-unit dwellings with jumbo loans, though the requirements may be stricter for these types of properties than they are for a primary, single-family residence.
For example, if you’re buying an investment property, we ask for either a 40% down payment or proof of equity for a loan as high as $1 million. If the property you’re purchasing has more than 20 acres, you’ll need an additional 10% for your down payment. Keep in mind that the ceiling for conforming loans goes up for multi-unit properties. The 2022 limit in Texas for a two-dwelling home is $828,700, and for a three-dwelling home, the limit is $1,001,650.
Jumbo Loan Refinancing Requirements
You can use a jumbo loan to refinance. You have two options for refinancing in this manner: rate or term refinance or cash-out refinance. Remember that refinancing always comes with closing costs and that the other jumbo loan requirements also apply.
Rate or Term Refinance Requirements
To refinance with a jumbo loan for a better interest rate or different loan term, you need to have equity built up in your home. The amount of equity required changes with the amount you want to borrow. For a loan up to $1.5 million, most lenders require 20% equity. For a loan between $1.5 million and $3 million, we require 40% equity.
Cash-Out Refinance Requirements
For a cash-out refinance, the amount of equity you have in your home will determine how much cash you can take. If you have below 40% equity, you can take up to $350,000 cash. If you have between 40% and 50%, you can take up to $500,000. If you have more than 50% equity, you can take up to $750,000.
Consider pursuing a jumbo loan if you’re looking to purchase a high-value house or if you’re in an expensive housing market. Jumbo loans are best for those with cash reserves, high credit scores, and a stable income. To find out more about qualifying for a jumbo loan in Houston, speak to a loan officer or a financial adviser about your housing needs and financial situation. Working with a professional is the best way to start the jumbo loan qualification process or to set financial goals so you have a better chance of qualifying down the line.
Jumbo Loan Requirements in Texas | Rock Mortgage — Houston, Texas
