Can I Qualify for a Jumbo Loan with a 5% Down Payment?

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Have you ever dreamed of living in a luxury home but never felt like you could afford it? The good news is that the luxury house you want may not be so far out of reach. With a jumbo loan, you can cover the mortgage for that higher-priced home with a down payment as low as 5%! Here’s what you need to know about jumbo loans and how to get the lowest possible down payment for one.

What are jumbo loans?

Fannie Mae and Freddie Mac, the government-sponsored agencies that buy mortgages and loans from banks and lenders, have conventional limits on loans that are standardized throughout the US. Jumbo loans, on the other hand, exceed these home mortgage limits, which makes them ideal for buying luxury homes set at higher prices.

Jumbo loans are designed to cover the full cost of a loan, thus simplifying home buying in higher-priced markets by eliminating the need to spend too much cash on a down payment. These loans don’t have PMI requirements, but because of the added risk to the bank or lender, they usually come with higher interest rates. However, jumbo loans can still be obtained at similar rates and terms to conventional mortgages.

How to Qualify for a Jumbo Loan with a 5% Down Payment

Jumbo home mortgage loans can be valued at up to 95%, so 5% would be the minimum down payment. Note that these loans are generally for homes valued at up to $2 million, while higher-priced homes will usually come with higher down payments. Here’s what you’ll need in order to qualify for a jumbo loan at 95%:

Excellent credit

To qualify for a jumbo loan, you’ll need a credit score of at least 700. A score of 720 is required for a loan that exceeds $2 million, but again, expect the down payment for these homes to be higher.

Proof of high income

You’ll need to provide full documentation for your income and assets when applying for a jumbo loan. If you’re regularly employed, these will include your tax returns and W-2 forms.

A low debt-to-income ratio

You’ll have a better chance of qualifying for a jumbo loan if your maximum debt-to-income ratio does not exceed 40%. For a down payment of less than 20%, your debt-to-income ratio should be 35% or lower.

Mortgage payment reserves

After your down payment, you’ll more than likely need to show proof that you can make your monthly loan payments once the house is yours. Because the housing market changes, the bank or lender will want to make sure you can continue to make monthly payments even when unforeseen events occur.

The exact number will depend on a variety of factors, such as the loan amount and your credit history, but a good amount to aim for is about three to nine months’ worth of monthly payment reserves. These reserves should be in a documented account at the time of closing, such as a retirement account (a 401k or an IRA).

If you can check every item off this list, then you may be able to qualify for a 5% down payment on a jumbo loan! Congratulations, that luxury home you’ve been dreaming of is now within your reach!