What Is An FHA Jumbo Loan And Should You Get One?

The maximum you can borrow for a conventional mortgage is capped by the Federal Housing Finance Agency (FHFA) and a county’s loan limits. But jumbo loans exceed these limits, allowing home buyers to borrow more for a pricier or luxury home. If you need a bigger loan with a lower down payment, consider opting for an FHA jumbo loan.

FHA jumbo loans have additional requirements and stipulations compared to standard FHA loans. We’ll break down how an FHA jumbo loan works and how to qualify for one.

What Is An FHA Jumbo Loan?

An FHA jumbo loan is a government-backed loan with a more relaxed down payment requirement and high borrowing limit for qualifying borrowers. Backed by the Federal Housing Administration (FHA), an FHA jumbo loan is non-conforming because it doesn’t meet Fannie Mae and Freddie Mac’s mortgage standards.

FHA jumbo loans let you borrow more than the limits set for conventional loans – but won’t let you borrow more than you need to purchase a home. You can’t apply for more than a home’s purchase price and pocket the difference at closing, except in the case of legitimate mortgage refunds.

FHA Jumbo Loan Requirements

FHA jumbo loan requirements are similar to standard FHA loan requirements, including:

• You must have a minimum 580 credit score.
• Your debt-to-income ratio (DTI) should be 43% or under.
• The home must be a primary residence and either a single-family home or multifamily residence with no more than four units.
• You must pay an upfront and monthly mortgage insurance premium (MIP).

In addition to meeting standard FHA loan requirements, borrowers may need to meet the following lender requirements for jumbo loans:

• Lenders may require borrowers to have up to 18 months of cash reserves to cover monthly mortgage payments.
• Borrowers will likely pay higher closing costs than the standard 3% – 6% of the total loan amount.
• Lenders may require higher FICO^® Scores.

FHA Jumbo Loan Limits

The Department of Housing and Urban Development (HUD) sets FHA loan limits. Like conforming loan limits, they vary by county. The number of units in a property will also affect your loan limit.

FHA jumbo loan limits also depend on the mortgage lender or lending platform you use and the purpose of the loan. Speak with a loan officer to discuss your options.

FHA Jumbo Loan Interest Rates

FHA mortgage loans typically offer competitive interest rates compared to conventional loans. A borrower with good credit will usually find that FHA jumbo loan rates are lower than traditional jumbo mortgage rates. However, because FHA jumbo loans include a monthly MIP, there’s no guarantee that a lower interest rate will save you money.

Take a look at our 2024 mortgage interest rate forecast to get an idea of what rates to expect.

Pros And Cons Of FHA Jumbo Loans

While an FHA jumbo loan can help prospective home buyers purchase a more expensive home, you should still consider the drawbacks before committing to this home loan. Here are the pros and cons of FHA loans, in particular FHA jumbo loans:

Pros

• Maximum loan limits for FHA jumbo loans exceed conforming loan limits.
• FHA jumbo loans typically offer lower down payments and have more flexible credit score requirements than traditional jumbo mortgages.
• FHA jumbo loans typically have lower interest rates than traditional jumbo loans.

Cons

• Homeowners must buy mortgage insurance and pay a monthly MIP for the life of the loan.
• Jumbo loan borrowers usually pay higher closing costs.
• Every county has a different maximum loan limit.
• Some lenders may have stricter borrower credit requirements.
• FHA jumbo loans may require manual underwriting, which can take more time and paperwork than automated underwriting.

You can also explore the Rocket Mortgage^® Jumbo Smart loan to see if it’s a better option for you. Our Jumbo Smart loan lets you buy a home outside conforming loan limits with a down payment as low as 10.01% and no private mortgage insurance (PMI).

The Bottom Line

Buying a more expensive home while saving on a down payment is ideal for some home buyers. But first, you’ll need to consider all the pros and cons of an FHA jumbo loan to decide whether it’s the right financing option for your situation. Compare rates from different lenders and inquire about your county’s loan limits so you get the right loan for your needs from the start.

Want to see what rates and terms you’d qualify for with a mortgage? Start the initial approval process today with Rocket Mortgage.