The term jumbo loan can sound intimidating - but don’t run! This loan could be exactly what you need to get into your dream home, especially in today’s scorching hot Houston housing market.
Our team of mortgage experts compiled all the must-know details to help you understand the ins and outs of jumbo loans - jumbo loan rules, jumbo loan limits in Houston - we covered it all! If you’re on the hunt for the perfect home, it’s time to learn all you can about these jumbo loans to see what’s best for you. So what do you need to know about jumbo loans in Texas? Keep reading to find out!
What is a jumbo loan?
A jumbo loan is simply a mortgage that exceeds the conforming limit. That's it! The requirements for qualifying for a jumbo loan are generally the same as for any other mortgage, with a few exceptions.
But let’s dive in a bit deeper to help you better understand. If you're in the market for a new home and your budget is above the conforming loan limit, you'll need to apply for a jumbo loan.
Jumbo loans are mortgages that exceed the conforming limit set by Fannie Mae and Freddie Mac, which currently sits at $647,200 in Texas. In some areas of the country, this limit is much higher, though all counties in Texas are the same.
Jumbo mortgage loans are financed at a rate that exceeds conventional mortgage limits established for FHA and Freddie Mac. Because of this increased liability, jumbo loans generally have higher interest rates than conforming loans.
Jumbo mortgage loans can be used for the purchase of expensive properties and high-grade custom-built buildings. The loan requires higher payments in addition to traditional loan payments.
Jumbo loan limits
In Texas, the conforming limit is $647,200 - this means that any loan amount above that is considered a jumbo loan. However, there isn’t a particular limit on jumbo loan amounts.
The maximum amount you qualify for with a jumbo loan will depend on the specific lender you choose, as well as what other assets or payments you’re prepared to leverage in the purchase.
Are jumbo loans different than the conforming loan limit?
Yes, jumbo loans are different than the conforming loan limit. Jumbo loans are designed for people who want to buy expensive homes or high-grade custom-built buildings. Jumbo loans require higher payments in addition to traditional loan payments.
Meanwhile, the conforming loan limits refer to the maximum loan amount that Fannie Mae or Freddie Mac can back. If you're looking for a loan above the conforming limit, you'll need a jumbo loan. As we noted, there isn’t a jumbo loan limit, but what is commonly called a “jumbo loan threshold” - i.e. what a specific lender is willing to loan to well-qualified buyers.
Are there specific jumbo loan rules in Texas?
Yes, there are. Jumbo loans in Texas have slightly different requirements than they do in other parts of the country. For one thing, you'll need to have a minimum credit score of 680 to qualify (as opposed to 620 for most other loans).
You'll also need to prove that you have 12 months' worth of "reserves" - this means having enough money saved up to cover your mortgage payments for that amount of time, even if you lose your job. We’ll jump more into reserves in a little bit!
What is the jumbo loan minimum credit score?
As we mentioned before, you'll need a minimum credit score of 680 to qualify for a jumbo loan in Texas. However, if you have a lower credit score, you may still be able to get approved - it just might be at a higher interest rate. Alternatively, some lenders will require an even higher credit score minimum, such as 700 or 720.
It’s best to work with an experienced lender who’s knowledgeable about jumbo loans. They can help work through scenarios such as if your credit score is lower than anticipated, but if you have other ways to prove you’re a qualified buyer.
Jumbo loans are backed by private investors. Due to rigorous standards, rates on jumbo loans are competitive. Make sure you find a lender you can trust to walk you through all the details.
What are jumbo loan requirements?
In addition to having a high credit score, you'll also need to prove that you have enough "reserves" to cover your mortgage payments for at least 12 months. This means having enough money saved up to cover your mortgage payments even if you lose your main source of income.
You'll also need to show proof of income and employment, as well as go through a general underwriting process. Jumbo loans follow the same general path as applying and qualifying for a typical home loan, but with additional scrutiny and greater evidence of credit history and income.
What are jumbo loan "reserves"?
Jumbo loan reserves are simply funds that you've set aside specifically to cover your mortgage payments in the event that you lose your job or otherwise experience a financial setback.
Having 12 months' worth of reserves is generally seen as a good rule of thumb, but you may be able to get away with less if you have a strong income and employment history.
Having such reserves is one of the main differences between conventional loans and jumbo loans. Typically your savings are used as a way to make a down payment, and not as proof of your ability to repay your home loan.
However, since jumbo loans represent a whole lot more money, it makes sense for lenders to complete due diligence and make sure that borrowers have financial reserves to float the loan in case of an emergency.
What can I use as payment on a jumbo loan?
For the most part, you can use any type of income or asset as payment on a jumbo loan. This includes things like salaries, investments, and even alimony or child support payments.
Like other loans, you can also use gift funds to support your down payment or to satisfy your reserve requirements. You should expect t put down 20% on a jumbo loan in Texas.
Do you need a jumbo loan in Houston?
If your budget is above the conforming limit set by Fannie Mae and Freddie Mac, then you'll need to apply for a jumbo loan to finance your new home. And since the median single-family home prices in Houston have increased by 16.3% in just the past year, it’s likely the home you’re looking at would require a jumbo loan.
One consideration in favor of a jumbo loan is the absence of any jumbo loan limit. You simply find the home that works best for you and work with a lender on your approval and loan. So instead of being boxed in by conforming loan limits, consider how a jumbo loan could be the trick to getting you the perfect home.
Do you qualify for a jumbo loan in Texas?
To qualify for a jumbo loan in Texas, you'll need a minimum credit score of 680 and enough "reserves" to cover your mortgage payments for at least 12 months. You'll also need to show proof of income and employment, as well as go through a general underwriting process.
You can prepare for this process by collecting proof of income, banking statements, and any other statements related to your other assets. If you think your credit score is a little low, you can consider options for boosting your score, such as paying off credit cards.
Who pays closing costs in Texas?
Closing costs can include things like appraisal fees, title insurance, and other miscellaneous expenses. In Texas, it isn’t always clear who will end up paying these costs.
For example, the seller will often pay between 5% to 10% of the sales price, while the buyer pays between 3% to 4% in closing costs. The exact details are hashed out during negotiations before the sale is agreed upon by both parties.
Can you avoid closing costs as a buyer?
If you're paying cash for your home, you may be able to avoid some or all of the closing costs. However, if you're taking out a mortgage, it's generally not possible to avoid them entirely.
If you’re trying to get the seller to pay the greater share, you request this as a “seller concession” in the sales agreement. Since these funds typically come out of the proceeds from the sale, the seller won’t feel the pinch the same way and might be amenable to agreeing to this. Especially if it means closing the sale at the asking price or moving the process quickly.
However, in a seller’s market, when there are multiple offers on a property, sellers are far less likely to cut such a deal. Instead, as the buyer, you may just opt to roll closing costs into your home loan and pay them off that way.
Can you avoid closing costs as a seller?
It's typically not possible for sellers to avoid paying closing costs, but they may be able to negotiate with the buyer to have them cover some or all of the expenses.
For example, in a hot housing market, a seller may give preference to a buyer who’s willing to cover closing costs. As the buyer, think of this as part of your home purchase cost and a great way to make your offer more attractive to sellers.
Other Considerations on a Jumbo Loan in Texas
When taking out a jumbo loan in Texas, you can expect to pay fees for things like an appraisal, title insurance, and other miscellaneous expenses. These fees can add up, so it's important to factor them into your budget when considering a jumbo loan.
In Texas, it's common for escrow to be set up at closing to protect both the buyer and the seller. This means that the buyer pays a set amount of money each month into an account, which is then used to pay the property taxes and insurance on the home.
You'll also need to have homeowner's insurance in place before you can close on your jumbo loan. This is typically done by setting up an escrow account, as we mentioned before.
How do I apply for a jumbo loan?
If you think you might need a jumbo loan to finance your new home, the first step is to contact a lender and start the application process. Be sure to have your financial documents in order, including things like proof of income and employment, as well as your credit score.
Once you've been approved for a loan, you'll need to go through the underwriting process and then you can begin shopping for your new home!
Getting started on a jumbo loan with Texas United Mortgage
If you're looking to buy a home in Houston that is above the conforming limit set by Fannie Mae and Freddie Mac, then you'll need to apply for a jumbo loan.