JUMBO
Property Types

A jumbo mortgage is a home loan that exceeds the conforming loan limits set by the Federal Housing Finance Agency (FHFA). These limits vary by region, but in 2024, the conforming loan limit for most areas is $766,550, with higher limits in more expensive areas. Jumbo mortgages are used to finance more expensive properties, and they have stricter qualification requirements due to the higher risk for lenders.

When applying for a jumbo mortgage, the property type plays a significant role in determining eligibility. Not all properties are eligible for jumbo financing, and the terms may vary depending on the lender. Here’s a breakdown of the most common property types eligible for jumbo mortgages:

Primary Residence
This is the most common type of property financed with a jumbo mortgage. A primary residence refers to the home where the borrower plans to live full-time. Lenders typically view primary residences as less risky than other property types, which may lead to more favorable terms, such as lower interest rates or smaller down payments (though jumbo loans still generally require a significant down payment, often around 10-20%).

Second Home or Vacation Home
Borrowers can also use a jumbo mortgage to finance a second home or vacation home. These properties are typically located in vacation destinations, like beach towns, mountains, or resort areas. Since second homes are not the borrower’s primary residence, lenders see them as higher risk than primary homes, which often results in stricter requirements. Borrowers may need a higher credit score, a larger down payment (around 20%), and significant cash reserves to qualify.

Investment Property
Some lenders allow jumbo loans for investment properties, but they usually come with stricter criteria than for primary or second homes. Investment properties, such as rental homes or multi-unit buildings, are considered riskier because they are income-generating and depend on the rental market and tenant occupancy. Borrowers will likely need to demonstrate significant financial stability, have strong cash reserves, and provide proof of consistent rental income.

Investment property that may qualify include:
– Single-family rental homes
– Multi-family properties (up to four units)
– Condominiums in certain markets (depending on the lender’s requirements)

Multi-Unit Property
Jumbo loans can also be used to purchase multi-unit properties, such as duplexes, triplexes, or fourplexes. The maximum number of units that can be financed with a jumbo mortgage is typically four. These properties may be used as the borrower’s primary residence or as investment properties. However, requirements may vary:
– If you live in one of the units and rent out the others, the property can often be treated similarly to a primary residence.
– If the property is purely for investment purposes, stricter qualification standards may apply.

Luxury Home
Since jumbo mortgages are designed for higher-priced homes, luxury properties in affluent areas are prime candidates for jumbo financing. These can include large estates, high-end custom homes, and properties in exclusive neighborhoods where prices far exceed the conforming loan limits. These homes may feature high-end finishes, amenities, and extensive land, contributing to their elevated prices.

Condos and Townhomes
Jumbo loans can also be used to purchase condominiums and townhomes, but lenders typically have stricter guidelines for these types of properties. The condo association’s financial health and the percentage of owner-occupied units are key factors lenders assess. In some cases, lenders may require the condo complex to be approved by government agencies like Fannie Mae or Freddie Mac.

Additionally, lenders might limit the number of condo units in a building that can be financed with jumbo loans, and special assessments or litigation involving the homeowners’ association can complicate the approval process.

New Construction and Custom Homes
Jumbo loans are also available for new construction homes or custom-built homes. For these types of projects, borrowers may either:
– Take out a jumbo construction loan, which converts to a permanent loan upon completion of the home.
– Secure jumbo financing for the purchase of a newly constructed property.

Lenders may require a detailed plan for new construction, including a budget, timelines, and contractor agreements, before approving jumbo financing for this type of property.

Non-Warrantable Condos
While many lenders are cautious about issuing jumbo loans for non-warrantable condos (those that don’t meet Fannie Mae or Freddie Mac guidelines), some will consider it. Non-warrantable condos are typically seen as higher risk due to factors like a high percentage of investor-owned units, ongoing litigation in the complex, or a lack of financial reserves within the homeowners’ association. These properties can still be financed, but expect stricter qualification standards.

Key Considerations for Jumbo Mortgage Property Types:
– Higher Down Payments: Due to the riskier nature of jumbo loans, borrowers are often required to provide larger down payments, typically ranging from 10-30% depending on the property type and borrower’s financial profile.
– Stricter Credit Requirements: Properties like investment homes, second homes, or non-warrantable condos may require higher credit scores (700+), larger cash reserves, and proof of income stability.
– Property Appraisals: Lenders often require multiple appraisals to ensure the property’s value justifies the large loan amount. Luxury homes and unique properties may need specialized appraisers due to their uncommon features.

Jumbo mortgages can be used to finance a wide range of property types, including primary homes, second homes, investment properties, multi-unit buildings, and even luxury homes. While the eligibility criteria and requirements may vary depending on the property, having a solid financial profile, strong credit, and the ability to meet higher down payment demands will improve your chances of securing a jumbo loan. Always consult with a lender to understand the specific guidelines for the property you’re interested in.