FHA Jumbo Loans: Borrowing Above The Loan Limit

FHA jumbo loans are popular among borrowers looking to finance higher-priced homes with low rates and low down payments or borrowers who need a mortgage loan larger than their county loan limit

Increased construction costs, changes in economic variables and the pandemic have all contributed to the rising price of homes across the country. This recent trend doesn't show any signs of stopping, making FHA jumbo loans an even more valuable option.

FHA Jumbo Loan Limits and Maximum Loan Amounts

The FHA announced the new 2024 FHA jumbo loan limits in November of 2023. Effective Jan. 1, 2024, the new single-family loan limit "floor" is $498,257. The new single-family loan limit "ceiling," or maximum, is $1,149,825, providing potential homeowners with more options following a year of record housing price increases. The higher ceiling amounts are reserved for higher-cost areas like New York, Colorado, California or Washington, D.C.

Additionally, Hawaii, Alaska, Guam and the U.S. Virgin Islands each have separate FHA loan limits. For example, the loan limit for a single-family home in Hawaii, is $1,724,725.

The 2024 national conforming loan limit is $766,550. However, FHA's loan limits are more complex compared to conforming loans. The FHA loan "floor" is calculated at 65% of the national conforming limit and applies to parts of the country where 115% of median home prices is below that 65% limit, or $498,257. The FHA loan ceiling, $1,149,825, is calculated at 150% of the conforming loan limit.

FHA Jumbo Loan Requirements

FHA jumbo loan requirements ask borrowers to meet the qualifications for a standard FHA loan before meeting conditions to secure the jumbo loan.

Basic FHA requirements include:

• The borrower's credit scores must be at least 580 to be eligible for a 3.5% down payment
• The borrower's credit scores must be between 500 and 579 to be eligible for a 10% down payment
• Borrowers have to pay mortgage insurance premium (MIP)
• The borrower's debt-to-income ratio must be less than 43%
• The loan must be used only for the primary residence (FHA loans can't be used to purchase vacation or investment properties)
• Must show proof of employment and regular income payments (i.e., not a casual or on-call employee)

In addition, borrowers should:

• Have higher credit scores. Some lenders will work with credit scores of at least 700 for a jumbo loan, while others require a credit score of at least 720.
• Have cash reserves. Some lenders require proof of cash reserves to cover a year's worth of mortgage payments.
• Be prepared for additional paperwork. FHA jumbo loans often require extensive documentation, such as copies of your complete tax return, W2s and 1099s.

Because each lender is different, it's worth speaking to several lenders to find the best fit for your situation. Paddio currently looks for credit scores of 620 or above.

FHA Jumbo Loan Pros and Cons

Deciding to apply for an FHA jumbo loan requires careful consideration. To help you get started, let's look at the general pros and cons:

Pros of FHA Jumbo Loans

• A lower down payment means less time and sacrifice to save up the necessary money.
• Qualification can be easier compared to conventional loans, with more relaxed credit requirements.
• Borrowers can buy a home in their preferred location/current hometown; they don't have to move because they're priced out of the local market.

Cons of FHA Jumbo Loans

• A lower down payment means less equity in the home at the time of purchase, as well as more time needed to build up home equity.
• Higher mortgage interest rates.
• You'll owe more money to the lender, compared to other types of FHA loans.
• Mandatory mortgage insurance for the lifetime of your mortgage.
• Tougher to qualify for an FHA jumbo loan compared to other FHA loans.
• Borrowers may be asked to have cash reserves on hand.

Whether or not an FHA jumbo loan is right for your family will depend on your specific situation. If you're considering purchasing a home and wonder whether an FHA jumbo loan is the best choice for your family, Paddio can help. Get in touch today!