Do Jumbo Loans Require a 20% Down Payment?

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Do jumbo mortgage loans require 20% down? Sometimes they do, while other times they don’t. Most lenders require at least 10% down, but that’s not written in stone. There are a variety of factors that can determine how much a person has to put down on a jumbo loan. Keep reading to learn all about them!

This article is part of a broader series that explores the “jumbo loan.” These are mortgage products that exceed the conforming loan limit for the county in which the home is purchased.

Due to their size, jumbo mortgage loans often have unique requirements and criteria for borrowers. Today, we’ll talk about the down payment side of things. We will be answering a common question among borrowers: Do jumbo loans require a 20% down payment?

Jumbo Loans Sometimes Require 20% Down

The short answer is that it varies. Depending on the scenario, a lot of mortgage lenders do require at least 20% down for a jumbo loan.

But there are also situations where a lender might allow for a smaller down payment, especially if they feel the borrower is otherwise well qualified. Additionally, there are scenarios where a bank or mortgage lender might require even more than 20% down on a jumbo loan.

There are no hard-and-fast rules as to the minimum required investment for these “oversized” mortgage products. It can vary from one mortgage company to the next, based on their business model, their risk-assessment procedures, and other factors.

What Is a Jumbo Loan?

In this article, we are primarily talking about conventional mortgage loans. These are loans that do not receive any kind of government insurance or guarantee. This distinguishes them from government-backed mortgage programs like FHA and VA.

Depending on the amount of money being borrowed, a conventional loan can fall into one of two categories:

  • Conforming: If the mortgage amount falls within the loan limits for the county where the home is located, it is referred to as a conforming loan. It meets or “conforms” to a set of pre-established guidelines, and can therefore be sold into the secondary mortgage market through Fannie Mae and Freddie Mac.
  • Jumbo: If the mortgage amount exceeds the conforming loan limits for a particular county, it’s referred to as a jumbo loan. These larger mortgage products cannot be sold through Fannie Mae and Freddie Mac. Instead, they either have to be held by the lender or sold to private investors. Generally speaking, jumbo loans are a riskier mortgage product for the lender, when compared to conforming.

Now we’re getting to the down payment side of things. Due to the higher level of risk associated with jumbo loans, lenders often require 20% down for borrowers seeking these mortgage products.

Sometimes they require an even bigger down payment — but not always. Exceptions can be made based on market conditions and individual borrower qualifications. So let’s talk about those factors next.

Minimum Down-Payment Requirements Can Vary

If you’re planning to use a jumbo loan to buy a home, you can probably expect to put down at least 10%.

Many lenders require an even bigger investment, equaling 20% of the purchase price — or even more. It’s rare to find a mortgage lender that will offer jumbo loans with a down payment below 10%, but we can’t rule it out entirely.

A conforming loan, on the other hand, can have a down payment as low as 3% of the purchase price. There is a lower level of risk associated with these smaller mortgage products. They fall within the loan limits mentioned earlier and can therefore be sold into the secondary mortgage market. As a result, lenders are often willing to allow for a smaller down payment on these products, compared to the bigger jumbo loans.

Investor Demand Plays a Role as Well

As mentioned above, jumbo loans are commonly sold to private investors (as opposed to Fannie Mae and Freddie Mac). This means that the level of demand from investors can influence the down-payment requirements for jumbo mortgages.

When the demand for these products is high, lenders tend to be more confident that they can sell them off. In such times, banks and mortgage lenders might allow for a smaller upfront investment. They might allow borrowers to put down less than 20% for a jumbo loan.

The same goes for mortgage rates. When there is a lot of demand for jumbo mortgage products, lenders often charge lower rates. This in turn allows them to generate more loans and increase profits. When the demand dries up, on the other hand, lenders tend to charge higher mortgage rates for jumbo loans in order to offset the risk.

Investor demand for jumbo mortgage loans can vary over time, due to a number of factors. Economic conditions play a role here. When the economy stumbles, investors tend to gravitate toward the more secure investments, like government bonds. This in turn can affect the mortgage market.

But we’re getting into the weeds here. The point is, the level of demand (or “appetite”) for jumbo loans can influence everything from mortgage interest rates to the down-payment requirements. That’s one of the reasons why these requirements can change over time.

The Benefits of Being a ‘Well-Qualified’ Borrower

Your qualifications as a borrower also play a role here. Mortgage lenders tend to charge higher interest rates — and required bigger down payments — for borrowers who are seen as a bigger risk. Stronger borrowers, on the other hand, often qualify for lower mortgage rates and more flexible down-payment guidelines.

So, your qualifications as a borrower can partly determine whether you have to put 20% down for a jumbo loan, or whether you can get by with a smaller investment. Here, we are talking about things like your credit score, your debt-to-income ratio, your financial assets, and the amount of “cash reserves” you have in the back.

As you can see, there are quite a few variables that determine the down payment required for a jumbo loan. It might be 20% for some borrowers, and 30% for others.

In this regard, mortgage financing is like any other type of credit. Well-qualified borrowers tend to enjoy better deals and more flexible requirements. Higher-risk borrowers, on the other hand, tend to pay more interest and often have to make a larger down payment for a jumbo loan.

Summary of Key Points and Concepts

We’ve covered a lot of information in this article. So let’s wrap things up with the summary of the key points:

  • Jumbo loans often require a down payment of 20%, or even more. This is due to the higher level of risk associated with these larger mortgage products.
  • But there is no industry-wide standard or rule regarding down-payment requirements for jumbo loans. So it can vary from one bank or mortgage lender to the next. This underscores the importance of shopping around.
  • The amount of demand from investors can influence mortgage rates and down-payment requirements for jumbo loans. When there is a lot of demand for these products, lenders tend to be more flexible with their requirements. And the opposite is true as well.
  • Your qualifications as a borrower can also influence the down payment amount that’s required for jumbo loan. It might be 20% — or more, or less — depending on your current financial situation. Borrowers with excellent credit, lower debt ratios, and cash reserves tend to have an easier time qualifying.
  • As a borrower, you can benefit from shopping around and gathering quotes from multiple lenders.

Disclaimer: This article explains why 20% down payments are often required for jumbo mortgage loans. Every mortgage lending scenario is different because every borrowers different. As you’ve just learned, there are many variables that can determine the amount you have to put down for a jumbo loan. As a result, portions of this article might not apply to your situation.