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Becoming the owner of a high-end house is an exciting milestone. Buying a luxury home requires a different type of thinking — and financing — than traditional homes do. Instead of applying for a conventional mortgage, you may need a jumbo mortgage to secure your new home.

Jumbo Mortgages Defined

As the name suggests, jumbo mortgages are larger than typical mortgages; however, they're more commonly used for properties such as vacation homes and primary residences. What constitutes a conforming loan and a jumbo mortgage depends on the geographic area in which you intend to buy. Although the maximum conforming loan limit in the U.S. is $647,200, that number rises in places such as California, Hawaii and the northeast. If you need more than the conforming amount in your area, you can apply for a jumbo loan.

Just as the threshold for jumbo mortgages depends on where you buy, so do the terms. Generally speaking, you should anticipate a larger down payment than you'd get with a traditional loan. Interest rates vary compared to conforming loan mortgages, though jumbo mortgages have sometimes carried more favorable rates in recent years.

Because jumbo mortgages carry higher down payments, chances are you won't need private mortgage insurance (PMI), as that's typically used to secure conventional mortgages with less than 20 percent down. But if you want to negotiate a lower down payment, some lenders may insist that you purchase PMI with the jumbo loan.

Unlike conforming loans, jumbo mortgages aren't backed by the government. Conforming loans cannot exceed the maximum mortgage amount allowed by the Office of Federal Housing Enterprise Oversight, which regulates Fannie Mae and Freddie Mac. That's why they're often unsuited to luxury home purchases. Jumbo mortgages, on the other hand, are issued privately by banks and lending organizations which allow for greater flexibility in the loan terms.

How to Qualify

The requirements for a jumbo mortgage are more strict than conforming mortgages due to the larger amounts in play.

Although some lenders may offer more relaxed terms, you should budget for a 20 percent down payment, as that tends to be the industry standard. Credit counts when qualifying for a jumbo mortgage and a less than perfect credit score may reduce your chances of approval.

Income documentation is also important, so make sure that you're keeping good records of everything — from Social Security benefits to your individual retirement account (IRA). Lenders may require some of this documentation, and you'll be better prepared if you have your information organized as soon as you decide to apply.

If you currently draw down income from your retirement savings, you may be able to use that money and other retirement accounts to qualify for a jumbo mortgage through asset depletion. Asset depletion allows you to use liquid assets, such as retirement accounts, as evidence of your ability to repay the loan. The amount of your assets (minus applicable fees) is divided over the expected life of your loan to determine how much you could afford in monthly payments.

While you don't have to use your retirement savings to pay for the loan, the fact that you have ready access to cash is a requirement for loan approval and will also serve as reassurance to your lender.

The Right Time for a Jumbo Loan

If you're in the market to buy a luxury home and need financing, you will likely need a jumbo loan. Take the time to speak with a mortgage loan officer to ensure everything goes according to plan. It's important to work with an experienced loan officer to help guide you through the process. That way, you can enjoy your gorgeous, new home with peace of mind.

This material is presented for informational purposes only and should not be construed as individual tax or financial advice. KeyBank does not provide legal advice.

By selecting any external link on, you will leave the KeyBank website and jump to an unaffiliated third-party website that may offer a different privacy policy and level of security. The third party is responsible for website content and system availability. KeyBank does not offer, endorse, recommend or guarantee any product or service available on that entity's website.

NOTICE: This is not a commitment to lend or extend credit. Conditions and restrictions may apply. Information and offers are subject to change without notice. All loans are subject to credit and collateral approval. Not all loans or products are available in all states.

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