Purchasing a home is an exciting and monumental experience and choosing your mortgage should be easy. But lenders in your area keep mentioning a jumbo loan instead of a traditional mortgage. What does that mean?
Whether you’re a first-time homebuyer or a seasoned homeowner, you deserve clarity and confidence in the homebuying process.
Nationwide lender, The Federal Savings Bank is here to help you prepare to apply for a mortgage. Your dream home awaits—let’s get started.
Apply for a conventional or jumbo loan online
Conventional loan breakdown
What you’ve probably heard of as a traditional mortgage loan is a conventional loan. A conventional loan is a mortgage provided by lenders and financial institutions, such as banks and credit unions.
The loan terms and requirements may vary based on your credit score, down payment, and your lender.
The common requirements for conventional loan approval may include:
- Good standing credit history and credit score
- Income stability
- Down payment between 3-20%
- Lower debt-to-income ratio (DTI)
- Ability to pay private mortgage insurance (if necessary)
Lenders will review the borrower’s credit history and score to determine how they manage their finances and whether or not they’re a potential risk to the lender. It’s important to note that a higher credit score can result in a more favorable interest rate.
Lenders will also assess and evaluate your employment history, income stability, DTI, and LTV ratio to determine if you can repay the loan. Your loan-to-value (LTV) is essential as it impacts how much you may have to pay for a down payment.
Typically, if your down payment is less than 20% of the home’s purchase price, you may need to pay monthly private mortgage insurance (PMI). PMI protects lenders from losing their money should you default on your loan.
Once you reach 20% in home equity, PMI typically falls off automatically.
A higher down payment can also result in lower interest rates and better loan terms.
Lastly, once you find your dream home, you’ll need a professional property appraisal to determine the home’s market value. To secure a conventional loan, the property must appraise for at least the purchasing price.
Jumbo loan breakdown
So you’ve found your dream home and you walk into your lender’s office thinking you’re going to apply for a conventional loan. But you find out that to get that dream house, you may need a jumbo loan. But what is a jumbo loan exactly?
A jumbo loan is a home loan that extends above the conforming loan limits set by the Federal Housing Finance Agency (FHFA).
Conventional loans adhere to the FHFA loan limits, but jumbo loans can finance high-priced homes that exceed traditional loan limitations.
The requirements for a jumbo loan are more strict than conventional loans, mainly due to the more significant loan amounts. These stringent requirements are necessary for the increased risk involved with jumbo loans.
Common requirements for jumbo loans include:
- Higher credit score and excellent credit history
- Larger down payment compared to conventional loans
- Potential reserve requirements
- Documentation and income verification
- Appraisals
- Property limitations
- Potential private mortgage insurance
Applicants for a jumbo loan should have a strong credit history and higher credit score, although the credit score requirements and restrictions can vary by lender.
With a larger loan, you can typically expect to pay more for a down payment. Some lenders may offer jumbo loan products with a smaller down payment, but you may have stricter qualification criteria and higher interest rates.
Borrowers may have to have a significant amount of reserves after closing to qualify for a jumbo loan.
These reserves are typically expressed as the number of months of mortgage payments a buyer must have saved in their savings or investment accounts, also known as liquid assets.
Borrowers should also be ready to provide extensive financial documentation that supports their ability to pay for the loan. This includes tax returns, W-2s, pay stubs, bank statements, and proof of assets.
If the dream home you’ve found exceeds conforming loan limits, you may need to apply for a jumbo mortgage.
Key features of both conventional and jumbo loans
- Conventional loans and jumbo loans both offer fixed-rate and adjustable-rate mortgages.
- Both loan products offer 15-year and 30-year options.
- Conventional loans adhere to conforming loan limits determined by the FHFA and vary by location, whereas jumbo loans extend the loan limits set by the FHFA.
- Both loans may be used to purchase a home, secondary home, or vacation property. You may also refinance, renovate, and buy land to build a home or for investment purposes.
- Conventional and jumbo loans tend to require a strong credit score and history for loan approval.
It’s critical to find a mortgage professional who can provide both types of home loans, as they’ll have the latest information and can answer any questions you may have regarding your eligibility, application, and loan offerings.
If you’d like to move forward with your chosen home, there are some steps you can take to best prepare yourself for a mortgage.
How to prepare for the process
Whether you have a home or property in mind or are still shopping, you can prepare yourself to apply for a conforming or jumbo loan with four essential steps.
- Check and improve your credit score (or establish credit if your history is weak)
- Determine a housing budget and save for a down payment
- Gather financial documentation
- Get prequalified for a conventional or jumbo loan
You can check your credit score to see where you stand and what actions you may take to improve it. Start by paying off outstanding debts and bills and by consistently paying monthly bills on time. This step can drastically increase your credit score.
Use a mortgage calculator to help you build a home purchase budget and determine how much you’ll need to save for a down payment.
Gather and organize your financial documents before you apply to help streamline the mortgage application process.
Lastly, meet with a lender and get started on the pre-approval process for a conventional or jumbo loan. Your lender will assess your creditworthiness and estimate how much you may borrow based on your financial scenario.
Apply with The Federal Savings Bank today
If you’re ready to take the next step, apply for a conventional or jumbo loan online with The Federal Savings Bank.
Our success is based on helping you pursue a mortgage option that suits your needs and providing you with guidance to help secure your future home.
You have questions. We’ll help find you the answer.
Get started with your conventional or jumbo loan at The Federal Savings Bank today.
Subject to credit approval. Terms and conditions may apply. Property insurance is required on all loans secured by property.
This article is intended for general informational and educational purposes only and should not be construed as financial or tax advice. For more information on financial planning or investment advice, consult a registered investment advisor or financial planner. For tax advice, please consult a tax professional.
This information is intended for educational purposes only. Products and interest rates subject to change without notice. Loan products are subject to credit approval and include terms and conditions, fees and other costs. Terms and conditions may apply. Property insurance is required on all loans secured by property. VA loan products are subject to VA eligibility requirements. Adjustable Rate Mortgage (ARM) interest rates and monthly payment are subject to adjustment. Upon submission of a full application, a mortgage banker will review and provide you with the terms, conditions, disclosures, and additional details on the interest rates that apply to you individual situation.
