Jumbo Mortgage Loans: High-Balance Financing

Every year, the Federal Housing Finance Agency (FHFA) sets a maximum "conforming loan limit" for every county in the United States. If your loan amount is under that limit, the loan can be sold to Fannie Mae or Freddie Mac. If you're buying a $1.5 million home and need to borrow $1.2 million, you have officially exceeded that county limit. Your loan is now considered "Non-Conforming" or Jumbo.

Who lends on jumbo loans?

Because Jumbo loans can't be sold to the government-sponsored agencies, they're held by private investors or massive portfolio banks. This means there is no single rulebook for Jumbo loans. Every investor sets their own guidelines. As a broker, AAA Capital Funding can take your loan to more than one Jumbo investor. If one investor’s DTI overlay is too strict, we send it to an investor with different guidelines.

A lot of buyers assume a jumbo purchase means selling investments to put 20% down. Twenty percent down usually gets the best pricing and avoids mortgage insurance, but it isn't a hard requirement.

Can I do 10 percent down?

For highly qualified borrowers (typically those with 720+ credit scores and strong income), we have access to Jumbo programs requiring only a 10% down payment. This allows you to keep hundreds of thousands of dollars in the market earning a return, rather than trapping it in the drywall of your house.

Will I pay PMI on a jumbo?

If you put less than 20% down, the investor will typically structure the loan in one of two ways to protect their risk: they will either use Lender-Paid Mortgage Insurance (LPMI) built into the interest rate, or they will structure a "Piggyback" loan (an 80% first mortgage combined with a 10% second mortgage) to completely avoid PMI altogether.

Unlike standard Conventional or FHA loans, which rarely require you to have leftover cash after closing, Jumbo loans are obsessed with "post-closing liquidity." Because the monthly payments are massive, the investor wants a guarantee that a sudden job loss won't trigger an immediate default.

How are reserves calculated?

The underwriter will require you to prove you have a certain number of "months" of mortgage payments remaining in liquid assets. If your new Jumbo mortgage payment (Principal, Interest, Taxes, Insurance) is $8,000 a month, and the investor requires 12 months of reserves, you must prove you have $96,000 safely sitting in eligible accounts after you have paid your down payment and closing costs.

Eligible Reserve Accounts: You don't need to hold this in a standard checking account. Vested 401(k)s, IRAs, mutual funds, and publicly traded stocks can almost always be counted toward your reserve requirement (though retirement accounts may be hit with a 30% haircut to account for early withdrawal penalties).