What is Jumbo Mortgage Loan in California?

If you’re searching for a luxury home or live in a high-cost sector, you may need to borrow a large amount of money when you finance the home – this is where a Jumbo mortgage Loan in California comes into the picture. 

Jumbo Mortgage loan in California?

But what is a jumbo Mortgage loan in California, and how does it stack up against conventional options? A jumbo loan is defined as exceeding the loan limits, but there’s much to know before signing the dotted line.

Jumbo loan in California

A jumbo loan is a standard loan that breaks the conforming loan limitations set by the Federal Housing Finance Agency (FHFA) for Fannie Mae and Freddie Mac. 

In 2023, most U.S. single-family mortgages with balances greater than $726,200 in counties (and $1,089,300 in high-cost areas) will be considered jumbo.

Fannie Mae and Freddie Mac are two government-backed institutions that buy and sell mortgages from private lenders, and they are not allowed to buy loans that exceed loan limits. 

It is important for the borrower because it makes jumbo loans riskier for lenders and, therefore, more difficult and expensive to qualify for.

Understanding Jumbo Mortgage Loan Requirements

In California, the requirements for jumbo loans are more stringent than conforming loans. Here’s what you can expect:

Credit score

A minimum credit score of 700 may require a jumbo loan, much higher than the minimum required for a conventional or government-backed loan. It’s not impossible, and only a “good” credit score counts – you don’t need to reach a “very good” or “exceptional” score to get a jumbo loan.

Down payment

Expect to make a minimum 20% down payment; Most jumbo lenders require more. At the lower end of jumbo loans, this is a required down payment of $145,240 but increases with higher loan amounts. 

Jumbo loans in California can range from $1 million to $2 million, according to the CFPB. In that case, the minimum down payment ends in the $200,000 to $400,000 range.

DTI ratio

A maximum debt-to-income (DTI) ratio of 45% is common for jumbo loans. Even if you have an excessive income and a lot of debt, you may need help qualifying for a Jumbo loan in California.

Cash balances

You’ll need to show you have cash reserves for several months or years to protect against unexpected expenses or other financial speed bumps.

However, the amount required by the lender varies and may also increase or decrease based on your credit score, DTI ratio, property type, and how many homes you’ve financed. It is reasonable for jumbo lenders to expect to see six to 24 months of proof of cash (or liquid assets).

Closing costs

Closing costs for jumbo loans are higher than conventional or government-backed loans, especially in the case of non-qualifying jumbo mortgages, which are not limited by CFPB rules or by Fanny on how much they can charge in upfront fees.

Manual underwriting

Most jumbo loans had been manually underwritten, which means that, unlike most conventional or government-backed loans, they had yet to feed into a computer program determining whether you qualify. 

Instead, an actual human (an underwriter) assesses your financial picture and ability to repay the loan you’re interested in.

Pros and cons of a jumbo mortgage Loan in California

  • You can take up to the loan limit
  • You can get a fixed- or adjustable-rate loan
  • You can pay interest rates that are slightly lower than or near traditional loan rates
  • You can stay away from private mortgage insurance (PMI) if you set down at least 20%
  • You usually need at least a 20% down payment.
  • You should have a substantial amount of cash reserves.
  • You may be taking on a riskier loan because jumbo loans in California have fewer federal rules limiting them.
  • Since the mortgage interest deduction doesn’t provide an upper limit for jumbo loans, you might not save as much as you’d hoped at tax time.

Eligibility Criteria for Jumbo Loan in California

Credit Score and Credit History:

To qualify for a jumbo loan in California, borrowers generally need a credit score of 700 or higher. Lenders also review the borrower’s credit history, looking for a track record of responsible borrowing and timely payments.

Debt-to-income ratio:

The debt-to-income ratio (DTI) is the ratio of a borrower’s total monthly debt payments to their gross monthly income. To qualify for a jumbo loan, rustlers generally require a DTI ratio of 43% or lower, but some lenders offer jumbo loans with higher DTI ratios.

Employment and income verification:

Borrowers must provide documentation to verify their employment and income, including W-2s, tax returns, pay stubs, and bank statements. Lenders may also require verification of any additional sources of income, such as rental or investment income.

Property Appraisal and Loan-to-Value Ratio:

Lenders require a property appraisal to determine the market value of the purchased property. They also calculate the loan-to-value (LTV) ratio, which is the ratio of the loan money to the appraised value of the property. To qualify for a loan, borrowers generally need an LTV ratio of 80% or less.

According to Jumbo vs. loan rates

Historically, interest rates on jumbo loans have been higher than on conventional loans. However, something unusual happened in early 2022: Jumbo mortgage rates fell below 30-year conforming loan rates, likely in response to increased demand from investors buying Jumbo loans in the secondary market.

Jumbo mortgage rates vs. conventional loan rates

By the end of the year, things appear to have returned closer to normal, but they still aren’t completely back to how we once knew them. When the gap between jumbo and conventional rates widened in April 2022, Jumbo was 0.3326% cheaper. Fast-forward to November, and Jumbo was less expensive by only about 0.0755% for part of the month.


What will be considered a jumbo loan in California in 2023?

After a year of record housing price increases, the FHA recently increased jumbo loan limits, giving potential homeowners more options. As of January 1, the 2023 FHA Jumbo Loan single-family loan limit is a “floor” of $472,030 and a new “ceiling” or maximum of $1,089,300.

What is the minimum down payment for a jumbo loan in California?

A 20% down payment usually gets you the best available interest rate. 10% down (90% LTV) is still possible. The minimum FICO score ranges from 680-740. Fixed-rate or adjustable-rate mortgages are available.

What is California’s Conventional Loan Limit in 2023?

The Federal Housing Finance Agency set loan limits in 2023 for mortgages to be acquired by Fannie Mae and Freddie Mac. In most of California, the loan limit for single-family residences is $726,200, an increase of $79,000 from $627,200.

What is the debt-to-income ratio requirement for a jumbo loan?

The maximum debt-to-income ratio (DTI) for jumbo loans is typically 43%. Your DTI is the probability of your monthly earnings being used to pay all debt obligations and used by lenders to control how large a monthly mortgage payment you can handle.

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