If you’re in a scenario where your financials and credit score are high, and you’re ready to build your dream home in a desirable location, the jumbo construction loan might be for you.
Jumbo construction loans may help offer solutions for borrowers looking to build a home in high-cost areas.
You may use a jumbo construction loan to build your primary home, build a vacation or investment property, or purchase a new home and make major renovations or upgrades.
We’ll review what a jumbo construction loan is, the requirements, and the process you can expect.
Borrowers may get a jumbo construction loan to pay for the construction or renovation work of a new home, including materials, labor, permits, and other related expenses.
These loans differ from conforming loans as they do not adhere to the conforming loan limits set by the Federal Housing Financing Agency (FHFA)—which, as of 2023, is up to $726,200 depending on location.
If you’re hoping to build in an area where you’d need a home loan that exceeds that limit, then you’ll need to qualify for a jumbo loan.
You may typically expect the following requirements with a jumbo construction loan:
Additionally, lenders may ask for reserve funds or contingency reserves in the event of unexpected costs occurring either during construction or closing. With the higher loan limits in a jumbo construction loan, up to a year’s worth of monthly payments may be necessary.
Your lender may also require you to work with approved contractors to ensure their qualifications and financial stability.
Most federally backed construction loans, such as the Federal Housing Administration (FHA) or United States Department of Agriculture (USDA) construction loans, may require borrowers to meet additional requirements and adhere to set loan limitations.
These loan programs may alter building plans but may also provide opportunities to save money on your down payment and monthly mortgage payments. You may also expect more flexible credit scores and income requirements.
One exception is that the Department of Veterans of Affairs (VA) doesn’t typically set loan limitations— this means borrowers may receive the opportunity of lower down payments and flexible requirements while still building the home of their dreams.
Work with a lender experienced in jumbo construction loans so they can review your building plans and asses your financials to determine which loan product meets your needs.
Like any home loan, there’s a process to go through to secure a loan. The jumbo construction loan process works similarly to conforming construction loans and federally backed loans.
You may possibly expect the following:
The process of a jumbo construction loan may vary for everyone and the steps aren’t always sequential—you might already have a builder or contractor or have a preapproval for a jumbo construction loan.
However, for the most streamlined experience, take the necessary actions to prepare yourself and work with the right lender.
So, how can you prepare yourself for a significant loan like a jumbo construction loan?
Develop a good understanding of your budget and building plans. You may want to meet with a builder to get a better scope of what your project entails.
Ensure you understand the timeline and don’t be afraid to ask questions. You want to work with someone with the experience and equipment to complete your project.
Meet with a qualifying lender to obtain a pre-approval. A pre-approval gives borrowers peace of mind that there shouldn’t be any obstacles within the approval process. It also shows contractors that you’re a credible partner.
Make sure to provide your lender with the required documentation and information, such as your estimated budget, credit score, down payment information, and goals.
Whether you’re seeking a jumbo, conforming, or federally-backed construction loan —The Federal Savings Bank is here to help.
Our mission is that we strive to provide home loans with a seamless application process and homebuying journey for all, no matter where you are in the process or your situation.
Apply with The Federal Savings Bank today to learn how we may help you reach your homeownership goals.
Subject to credit approval. Terms and conditions may apply. Subject to VA eligibility requirements. Property insurance is required on all loans secured by property.
Down payment assistance requirements are based on the mortgage insurer or guarantor’s guidelines. Borrower may fund down payment and closing costs. Down Payment Assistance Program, which assist eligible homebuyers with purchasing a home. Down payment assistance programs are not eligible for all potential homebuyers.
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.