California Jumbo Loans: Straight Answers to 10 Common Questions

Jumbo home loans are a popular financing option among home buyers in the Golden State. This is largely due to the expensive nature of our real estate market. California jumbo loans are often used to finance high-end homes, including luxury properties and those located within desirable areas.

But what is a California jumbo loan? How do they work, and what does it take to qualify for this level of financing? Today, we will tackle ten of the most frequently asked questions about California jumbo loans.

1. What is a jumbo mortgage loan, exactly?

As the name implies, a jumbo mortgage loan is when you borrow a relatively large amount of money to purchase a home. Specifically, a California jumbo loan is one that exceeds the conforming mortgage limits established by the Federal Housing Finance Agency. If you take out a mortgage for more than the conforming loan limit in your county, you are entering “jumbo” territory.

2. What is considered to be a jumbo loan in California?

Conforming loans have a maximum mortgage size associated with them. These loans can be sold to Freddie Mac and Fannie Mae through the secondary mortgage market. The size limits are imposed by the Federal Housing Finance Agency. Anything that exceeds the conforming limit is considered a California jumbo loan.

The conforming limits vary by county, because they are based on median home values. More extensive counties tend to have higher limits, and vice versa. These limits can also change from one year to the next, due to rising home prices.

For most counties in the San Francisco Bay Area, the 2021 conforming loan limit is $822,875. In more affordable counties, such as Riverside and San Bernardino, the 2021 conforming limit is set at $548,250. So there’s a pretty broad range when it comes to these limits.

The bottom line is that if you borrow more than these caps, you are using a California jumbo loan.

3. Do they have higher mortgage rates?

This can vary over time. Sometimes, jumbo loans tend to have a lower average mortgage rate than their smaller conforming counterparts. Other times, they can have a higher interest rate. It partly depends on investor demand for the different types of mortgage loans.

When this article was published, in June of 2021, the average rate for a California jumbo loan was slightly higher than the average for a smaller conforming mortgage. But again, these trends can change over time.

4. What are the requirements for a jumbo loan in California?

The qualification requirements for a California jumbo loan can be more strict, when compared to the smaller conforming mortgage range. That’s because there is more money being borrowed.

There are no hard-and-fast rules that apply to all borrowers. But in general, you’ll need a good credit score and a sizable down payment to qualify for a jumbo loan in California. Additionally, you need to have a favorable debt-to-income ratio that shows you can manage your monthly payments along with your other recurring expenses.

Credit score requirements tend to be higher as well, when someone is using a jumbo loan. But again, there is no single cutoff point or threshold. As a mortgage broker, we review all aspects of a borrower’s financial situation to determine their qualifications.

5. How much do I have to put down?

The down payment requirements for a California jumbo loan tend to be higher than the smaller conforming mortgages.

Conventional loans that fall within the conforming size limits might allow for a down payment as low as 3%. But the required investment is typically higher for a jumbo loan, due to the larger amount being borrowed.

Here again, there is no single requirement that applies to all borrowers across the board. You might have to put down 10% or 20% on a California jumbo loan, depending on the situation. Please contact us if you have questions about these or other requirements.

6. Do I need to have perfect credit to qualify?

A flawless credit history is not necessarily required for a jumbo loan in California. But the credit requirements can be a bit more strict, when compared to a smaller mortgage loan.

Credit scores are just one part of a broader picture that determines whether or not you are qualified for a mortgage. That being said, a higher score will definitely work in your favor when applying for a California jumbo loan.

Having a score of 700 or higher will put you in a good position to qualify for this type of mortgage. But that number is not set in stone. Please contact us with any questions you have.

7. Are there alternatives to using a California jumbo loan?

Yes, there are other ways to finance an expensive home purchase in California, without using a jumbo loan.

For example, some borrowers actually combine two different mortgages to finance a home purchase. A common example is the 80/10/10 financing strategy. In this scenario, the borrower takes out one mortgage loan to cover 80% of the purchase price, along with a second loan for 10% of the price. The borrower then pays the remaining 10% in the form of a down payment.

That’s just one alternative to using a jumbo mortgage loan in California. There are other financing strategies available as well. Please contact us if you would like to explore your options.

8. What’s the most I can borrow with a California jumbo loan?

California jumbo loans can be pretty big. Well-qualified borrowers often take out loans in excess of $1 million. Jumbo loans of $2 million or even $3 million are fairly common as well, given the expensive nature of the California real estate market.

The maximum amount you can borrow with a California jumbo loan will largely depend on your income situation, along with your recurring debts. When we review borrowers, we want to ensure they are not taking on too much debt with the addition of a mortgage loan. Because that wouldn’t be in anyone’s interest.

The debt-to-income ratio is one of several tools we use to determine how much a person can borrow, based on their overall income and debt situation. We work closely with our clients to help them achieve their financing goals, while also looking out for their best interests.

9. What kind of home can I purchase with a jumbo loan?

You can buy various types of homes with a California jumbo loan, because there aren’t any government restrictions on how you can use it. As long as you meet the basic requirements for such a mortgage product, you could use it to purchase a primary residence, vacation house, or investment property.

10. How do I start the application process?

The application process for a California jumbo loan is similar to any other type of mortgage. Borrowers fill out a standard home loan application, also known as the Uniform Residential Loan Application (URLA). You will need to provide a variety of documents relating to your income, assets and earnings.

We can review your financial situation to determine how much you’re able to borrow. From there, the process is the same as it would be for any other type of mortgage. You make an offer to buy the house, the property gets appraised, and the loan goes through the underwriting and closing process.

While California jumbo loans tend to have stricter qualification criteria, there usually aren’t any additional steps involved. In a separate article, we’ve outlined the mortgage loan process in California in greater detail.