Credit Scores Easing for Jumbo Loan Borrowers

The scrutiny borrowers face when seeking jumbo loans might be as tough as ever, but qualifying one is at least getting easier.

More lenders are relaxing the minimum credit score needed to qualify for a jumbo over the past year. Prior to 2015, most lenders sought a minimum credit score of 700. The current norm, however, is closer to 650.

Perhaps the biggest indicator that the process for getting a jumbo is easing is the recent relaxing of credit score criteria by Wells Fargo, Bank of America, and JPMorgan Chase. All three institutions had held notoriously high standards for obtaining jumbos until last month, when in an effort to attract new borrowers in the face of a pending interest rate increase by the Fed, each institution  dropped its qualifying credit rates from well over 700 to the mid-to-high 600s. JP Morgan had the most notable reduction, dropping its qualifying score from 740 to 680.

These minimum required scores, of course, are still higher than those for standard mortgages, a.k.a. conforming loans. Those qualifying scores, according to the Home Buying Institute, average between 600 and 620. Jumbo loans are considered non-conforming loans in that they exceed the conforming loan limits for mortgages set in place by Fannie Mae and Freddie Mac, the two GSEs that buy mortgage loans from lenders.

In most areas of the United States, the limit for a conforming loan is $417,000, though it is as high as $625,000 in New York City and Hawaii, among other regions. Jumbos are any loans worth more and are, therefore, subject to more stringent lending rules because the two GSEs often will not buy them. This makes jumbos far riskier prospects for lenders, who typically require much larger downpayments in order to mitigate risk.

Despite the higher standards, the newly lowered bar to getting a jumbo is pretty fluid. Lenders seeing clients with scores lower than 650 can still give a loan if they feel the client is a strong candidate, due to larger downpayments or higher income.

Mortgage availability in general is on the increase. According to the latest Mortgage Credit Availability Index from the Mortgage Bankers Association, availability increased by half a percent in August, to 126. This is nothing unusual, as credit availability has increased in eight of the last nine months, according to Mike Fratantoni, MBA's chief economist. "While much of the loosening has been for jumbo loan products, the availability of conforming conventional mortgage credit has also somewhat increased,” he said.