The state of California has several areas with higher home prices as compared to others across the country. In many places of California this can require securing a jumbo loan to purchase a home.

What is a jumbo loan?Are There Jumbo Loans Available in California with 5% Down?

A jumbo loan is a loan that lends out a larger sum of money than the conventional loan limit. A conventional loan is a traditional and most widely used mortgage loan product. Many of these are backed by the federal entities of Fannie Mae and Freddie Mac. These loan giants set a conventional loan limit at $548,250 for most moderately priced counties in California and across the country. For counties that have higher average housing costs including Alameda, Contra Costa, Los Angeles, Maryann, NAPA, Orange, San Benito, San Francisco, San Mateo, Santa Clara, in Santa Cruz this conforming loan limit is raised to $822,375. For any loan amount above these numbers a person will need to take out what is considered a jumbo loan.

What are the Requirements for Securing a Jumbo Loan in the State of California?

Not every jumbo loan will have the exact same requirements with each lender. This is due to the fact that since a jumbo loan cannot be backed by Freddie Mac or Fannie Mae a lender is free to make whatever requirements they deem necessary to mitigate the risks of lending out a large sum of money. They do not have to conform to standards set by a separate loan-backer.

Though each lender is free to set their own requirements many of them stick to some basic qualifying requirements these can include:

  • Having a credit score of 700 or higher for a loan amount of $1,750,000 or higher
  • Buyers most often are expected to have 6 to 18 months of reserves after closing. The term reserve refers to the amount in the borrower’s bank accounts after the down payment and closing costs of the loan. 6 to 18 months means 6 to 18 months’ worth of mortgage payments.
  • These jumbo loan products are only available for residential housing including traditional single-family homes, townhomes, and condos, but cannot be used on vacant land commercial properties.
  • Most jumbo loans will require that the borrower has no larger than a 40% debt to income ratio. Debt to income ratio means the amount of committed and mandatory payments a borrower has as compared to the amount of income they are bringing in.

What are the down payment requirements of a jumbo loan in California?

Seeing that traditional conventional mortgage loans have such low mortgage rates right now there are also amazing offerings in the jumbo loan market in California as well. Many of the down payment requirements on jumbo loans currently have relaxed a little bit and in some cases, with the best qualifications, a borrower can qualify for a California jumbo loan at just 5% down with no required private mortgage insurance to be held.

For conventional/conforming or traditional loans it is very common that the borrower will have to pay for private mortgage insurance on any loan with less than a 20% down payment. This can add up to a couple hundred extra dollars a month on your mortgage payment. It is a nice bonus for anyone looking to attain a jumbo loan not to pay this extra cost per month.

For more information on jumbo loans in Mission Viejo and California please contact me anytime.

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