5 Things to Know About Jumbo Loans

In home loan land, there are two big categories (aside from government loans): conforming loans and portfolio loans. There’s much more on that topic, but for this conversation, the important part to know is that conforming loans are capped at a lower total loan amount, because they can be guaranteed by Fannie Mae and Freddie Mac (those are the organizations created by the federal government to support the mortgage market.)

What is a jumbo loan?

Jumbo loans are those too big for the conforming loan category, which means that a bank is taking on the risk associated with the loan. The bank will keep a jumbo loan within its own portfolio of investment holdings, instead of using Fannie Mae or Freddie Mac funds to back your loan. In Hawaii, the jumbo loan limit for a single-family home loan to jump to a jumbo mortgage loan is anything over $1,089,300.

Folks here in Hawaii might seek out a jumbo loan if they’re thinking about a big single-family home, going in on a multi-family property for the extended ohana, or looking at an investment property like a building with units to rent out. If that’s something you’re pondering, here are 5 things to know about jumbo loans.

1. The jumbo loan threshold in Hawaii is higher than in other places. Every year, the Federal Housing Finance Agency looks at average home prices in markets across the country, and sets threshold limits for conforming loans. For 2023, in the majority of the US, the threshold is $726,200. But in places they call “high-cost areas” -- like Hawaii -- the number is $1,089,300 for one-unit properties. When the loan surpasses the conforming loan limit , it is considered a jumbo loan. That’s because our average home prices in Hawaii are, for better or worse, higher than many other places in the country.
2. Because of the risk involved to the bank, jumbo loans can sometimes involve additional steps and expenses. Unlike conforming loans, which fit the criteria for safer bets and can be government-backed, portfolio loans like jumbo loans go through a few extra checks before they get approved. Some of those include:
   • An extra jumbo loan appraisal, or other verification steps, to confirm that the sales price of your home is appropriate for the actual value of the property, so the bank can be sure your loan is a good investment.
   • Additional fees, to cover the extra steps in the loan process. All these extra hoops to jump through often have price tags attached, that may show up in higher closing costs at the end of your home-buying process. These are good things to check into, in case they need to be part of your financial game plan.
3. Banks often have stricter jumbo loan requirements when it comes to the approval process than for conforming loans. Because the bank is taking all the risk of a jumbo loan into its own investment portfolio - not using government-backed funds from Fannie Mae or Freddie Mac - that means the bank will typically be more cautious about what loans are approved. A really strong applicant that’s likely to get approved would have:
   • A good-sized down payment - which we acknowledge can be hard to do in Hawaii given the high home prices, high cost of living, and the challenges associated with saving up a nest egg. More on that below.
   • A strong credit score - think 720 or higher. And the better the score, the more interest rate discounts you might be eligible for.
   • A healthy income and/or cash reserve, without too much pre-existing debt.
4. You may not need a 20% jumbo loan down payment. Once you start working with a local loan officer, you may find that the jumbo loan minimum down payment is actually within reach. While it’s ideal to show up with a 20% down payment ready. At ASB we know that often our Hawaii residents can be really well-qualified in all the important ways, but still have trouble getting that 20% wad of cash saved up.
   
   We believe that 20% number shouldn’t stand in the way of local families getting into the homes they qualify for, so we’re always ready to sit down with folks to see what paths we can open up. With mortgage loan programs like ASB’s piggyback option, home buyers can get help qualifying for a jumbo loan with 10% down payment by tapping into equity and avoiding the need for expensive mortgage insurance. This will help keep your monthly payment in check and on-budget. That’s the upside of the bank alone taking on the risk of these portfolio loans - we also get to set the terms for the loans based on our own bank’s values and priorities: serving our kamaaina families.
5. Don’t tackle it alone. As is often the case in banking, working with an expert is really the best way to get a good handle on all your jumbo loan options and the best paths forward to your goal. A good relationship with your banker or loan officer starts with a conversation, where asking questions, sharing ideas, getting inspired and helping you to your goals is the name of the game.

We welcome conversations with our ASB loan officers, even in the dream-it-up stage of your jumbo loan planning. Contact us to set up a time to talk story any time.