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From the economic impacts of the Covid-19 pandemic to record-high inflation to interest rate hikes from the Federal Reserve, the last several years have been plagued with financial unrest.

That may explain why only 48% of U.S. adults say they have enough emergency savings to cover at least three months’ worth of expenses, according to a new Bankrate survey. That’s nearly unchanged from 2022, when inflation reached a 40-year high.

For many Americans, this lack of reserves is a source of stress. The Bankrate survey found that a full 57% of U.S. adults are uncomfortable with the amount of emergency savings they currently have.

HR leaders have taken note. In fact, a growing number of employers now offer ways to help employees bolster their backup savings as part of their overall financial wellness benefits. If you’re interested in being one of them, read on. What follows are six moves that can help your organization build an emergency auto savings program that works best for your employees and your company.

1. Evaluate Employee Needs

The pandemic demonstrated that a huge percentage of employees in all salary ranges weren’t financially prepared for what was to become one of the most unprecedented periods of history.

This lack of preparedness added to an already stressful situation (working remotely, worries about health, child and elderly care needs, et cetera). Even as we move beyond the pandemic, however, employees are still on edge. SoFi at Work’s Future of Workplace Financial Well-Being 2022 study found that 75% of U.S. workers are facing at least one source of major financial stress. What’s more, employees are spending over nine hours per week while at work dealing with issues related to their financial situation (that adds up to a full 12 weeks of work each year).

Adding an emergency savings plan can help employees alleviate a significant amount of financial stress and provide a solution to the lack of short-term savings. This might be especially appealing for younger members of your workforce who may have fewer resources to rely on than older employees.

To determine how effective an auto savings program will be for each segment of your staff, you might think about creating a preliminary survey of employees to see what they feel they need most from a short-term savings plan.

Consider the following questions:

•   Will you participate or do you feel there are already too many demands on your paycheck?

•   Are you more likely to join if the company offers a match or initial contribution?

•   Will you gravitate to emergency savings in lieu of long-term retirement savings?

•   Do more accessible after-tax savings in a 401(k) account that can be used for emergencies appeal to you?

•   Do you think a separate emergency auto account will help you think about saving for specific needs?

2. Check Out the Competition

A good next step is to determine what competitors are offering their existing talent and new recruits in the short-term financial wellness arena. For example, is an emergency auto savings program common among companies competing for your talent? Do most competitors offer a match or contribution to get employees, especially new hires, started?

Use the results of this data and the survey of employees to devise the most effective program for your employees (see below) and, importantly, to help convince team members and management why an emergency auto savings program is right for your company’s total rewards strategy.

3. Determine the Impact of an Emergency Savings Program on Your Total Rewards Strategy

In recent years, you’ve likely had to shift or alter some of the components of your total rewards strategy, including compensation, benefits, flexibility, performance recognition, and career development. In light of those changes, where does an emergency auto savings benefit fit into the new reality? How does it fit with your HR financial wellness goals and business strategy?

The answer is likely very positive. It’s hard to imagine a total rewards strategy that doesn’t have a place for emergency auto savings, especially in light of recent times.

That said, it’s important that you structure and implement this benefit in a way that not only fills a need but enhances your overall strategy to retain, attract, and maximize talent. Be aware that when you add an important benefit such as emergency savings, you may shift the balance in your employees’ financial well-being focus from long-term to short-term goals.

As you implement the plan, you may need to realign your employee value proposition and total rewards strategy to encompass current and immediate needs while redoubling your efforts to educate and motivate employees on long-term financial wellness goals such as saving for retirement and healthcare costs.

4. Select the Solution and Roll Out Best for Your Goals

At SoFi at Work, we’ve found that selecting the right solution is critical to the utilization and effectiveness of every benefit in your total rewards strategy. Following the McKinsey framework can work well for all types of benefit rollouts, including emergency auto savings programs. These four principles can also help ensure benefit rollouts are integrated into your business strategy.

Choose Partners Wisely

Almost every benefit entails an outside partner to help administer and execute. Automatic emergency savings is no exception. Look for credible partners that can provide expert support and advice to a wide variety of employees with varying financial needs. For emergency savings, you’ll want to find a bank, credit union, or other financial institution that offers a low-cost, easy-to-use platform, like SoFi At Work’s Emergency Vault or open a Checking and Savings account with SoFi.

Focus on What’s Feasible

Make the program feasible to launch, which will help you make meaningful progress for employees in the short term as you lay down the foundation for long-term initiatives. This is key with emergency savings rollouts because by helping to relieve some short-term financial stress, you allow employees to focus on long-term goals sooner rather than later.

Make It Sustainable

Sustainable programs are able to flex with your business over time and during uncertain business conditions. Can your emergency auto-save program survive through the next period of uncertain business conditions? To answer this, your company may need to weigh questions such as whether the engagement benefits of a match outweigh the cost of sustaining the program? Is the plan flexible enough to undergo changes in the economy, your workforce, and your business strategy over time?

Get Personal

Enable personalization where you can. This way, employees are likely to feel emergency auto savings can help meet their unique needs. Offering a range of amounts that employees can automatically withdraw is the first step toward personalization. Providing calculators and other educational tools that help employees determine how much they need to save and how much they can afford to save is another personalization tactic.

Recommended: How Much Should Your Employees Have in Emergency Savings?

5. Use Communication Effectively

Top-notch communication techniques can help you drive participation and, importantly, change savings behavior in your workforce.

When asking for participation and engagement, lead with empathy. If there’s one thing the pandemic should have taught us, it’s that one size doesn’t fit all when it comes to supporting employees, who have had many different experiences and have many different needs.

Coordinating communications about the importance of emergency savings with other financial well-being education programs can help get the word out in an immediate and holistic way.

Clarity is Key

Accompany your rollout with extremely clear communications telling employees exactly what they can expect, including:

•   How payroll deduction works

•   How much — or how little — employees can save in the account

•   Calculators, tools, and education efforts designed to help employees determine what they should/can save

•   Thorough explanation of any company match offered — how much, how often, and portability

•   Which bank, credit union, or other financial institution will run the account?

•   How much, if any, interest will be earned

•   How withdrawals can be made

•   The fact that withdrawals can be made for any reason, no questions asked, with no penalties or tax consequences

•   A reminder that if employees leave the company, they may easily transfer the account to their own savings

Meet Employees Where They Are

Make sure effective and thorough communications are available across platforms so you can keep up with your far-flung workforce. Simply posting on the company website and hoping people sign up won’t work, especially in these times when your remote workforce may be feeling more disconnected from corporate communications than ever.

In all communications, make sure you take a multi-platform, consumer-grade, mobile-native technology approach.

6. Take Ongoing Pulse Checks

To determine engagement and any ongoing tweaks that need to be made, you’ll want to establish metrics to measure success at least quarterly. Then you’ll want to benchmark those results against your competitors and national averages to add an “outside-in” perspective.

Solicit employee input on the success of the program in three ways — employee surveys, focus groups with critical talent segments, and analysis of recent departing employees and job candidates who declined an offer.

Metrics can also help you track how well the benefit is supporting business goals. For instance, a customer-service-oriented company may find a higher focus among phone reps and fewer errors when staff is less burdened with financial worries.

The Takeaway

These six concepts are designed to help you build a successful, engaging, and effective emergency auto savings plan. By reducing employee stress and increasing productivity and loyalty, you’ll help promote financial well-being in your workforce as well as enhance your company’s total rewards strategy and overall business objectives.

Photo credit: iStock/alvarez

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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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A jumbo loan is a home mortgage loan that exceeds maximum dollar limits set by the Federal Housing Finance Agency (FHFA). Loans that fall within the limit are called conforming loans. Loans that exceed them are jumbo loans.

Jumbo mortgages may be needed by buyers in areas where housing is expensive, and they’re also popular among lovers of high-end homes, investors, and vacation home seekers.

What Is a Jumbo Loan?

To understand jumbo home loans, it first helps to understand the function of Freddie Mac and Fannie Mae. Neither government-sponsored enterprise actually creates mortgages; they purchase them from lenders and repackage them into mortgage-backed securities for investors, giving lenders needed liquidity.

Each year the FHFA sets a maximum value for loans that Freddie and Fannie will buy from lenders — the so-called conforming loans.

Jumbo Loans vs Conforming Loans

Because jumbo home loans don’t meet Freddie and Fannie’s criteria for acquisition, they are referred to as nonconforming loans. Nonconforming, or jumbo, loans usually have stricter requirements because they carry a higher risk for the lender.

Jumbo Loan Limits

So how large does a loan have to be to be considered jumbo? In most counties, the conforming loan limits for 2023 are:

•  $726,200 for a single-family home

•  $929,850 for a two-unit property

•  $1,123,900 for a three-unit property

•  $1,396,800 for a four-unit property

The limit is higher in pricey areas. For 2023, the conforming loan limits in those areas are:

•  $1,089,300 for one unit

•  $1,394,775 for two units

•  $1,685,850 for three units

•  $2,095,200 for four units

Given rising home values in many cities, a jumbo loan may be necessary to buy a home. Teton County, Wyoming, for instance, has an average home value of $1,624,087 and a conforming loan limit of $1,089,300.

Recommended: The Cost of Living By State

Qualifying for a Jumbo Loan

Approval for a jumbo mortgage loan depends on factors such as your income, debt, savings, credit history, employment status, and the property you intend to buy. The standards can be tougher for jumbo loans than conforming loans.

The lender may be underwriting the loan manually, meaning it’s likely to require much more detailed financial documentation — especially since standards grew more stringent after the 2007 housing market implosion and during the pandemic.

Lenders generally set their own terms for a jumbo mortgage, and the landscape for loan requirements is always changing, but here are a few examples of potential heightened requirements for jumbo loans.

•  Your debt-to-income (DTI) ratio. This ratio compares your total monthly debt payments and your gross monthly income. The figure helps lenders understand how much disposable income you have and whether they can feel confident you’ll be able to afford adding a new loan to the mix.

To qualify for most mortgages, you need a DTI ratio no higher than 43%. In certain loan scenarios, lenders sometimes want to see an even lower DTI ratio for a jumbo loan, or they may counter with less favorable loan terms for a higher DTI.

•  Your credit score. This number, which ranges from 300 to 850, helps lenders get a snapshot of your credit history. The score is based on your payment history, the percentage of available credit you’re using, how often you open and close accounts such as credit cards, and the average age of your accounts.

To qualify for a jumbo loan, some lenders require a minimum score of 700 to 740 for a primary home, or up to 760 for other property types. Keep in mind that a lower score doesn’t mean you won’t be able to get a jumbo loan. The decision depends on the lender and other factors, such as the loan program requirements, your debt, down payment amount, and reserves.

•  Down payment. Conforming mortgages generally require a 20% down payment if you want to avoid paying private mortgage insurance (PMI), which helps protect the lender from the risk of default.

Historically, some lenders required even higher down payments for jumbo mortgages, but that’s not necessarily the case anymore. Typically, you’ll need to put at least 20% down, although there are exceptions.

A VA loan can be used for jumbo loans. The Department of Veterans Affairs will insure the part of the loan that falls under conforming loan limits. The down payment requirement is based on the portion of the jumbo loan that’s above the conforming loan limit. The loan is available from some lenders with nothing down and no PMI. VA loans have a one-time “funding fee,” though, a percentage of the amount being borrowed.

•  Your savings. Jumbo loan programs often require mortgage reserves, housing costs borrowers can cover with their savings. The number of months of PITI house payments (principal, interest, taxes, insurance), plus any PMI or homeowner association fees, needed in reserves after loan closing depends on many factors. For a jumbo loan, some lenders may require reserves of three to 24 months of housing payments.

You don’t necessarily need to have all the money in cash. Part of mortgage reserves can take the form of a 401(k), stock portfolios, mutual funds, money market accounts, and simplified employee pension accounts.

Also, depending on the loan program, a lender may be comfortable with lower cash reserves if you have a high credit score, low DTI ratio, a high down payment, or some combination of these things.

•  Documentation. Lenders want a complete financial picture for any potential borrower, and jumbo loan seekers are no exception. Most lenders operate under the “ability to repay” rule, which means they must make a reasonable, good-faith determination of the consumer’s ability to repay the loan according to their terms. Applicants should expect lenders to vet their creditworthiness, income, and assets.

Jumbo Loan Rates

You might assume that interest rates for jumbo loans are higher than for conforming loans since the lender is putting more money on the line.

But jumbo mortgage rates fluctuate with market conditions. Jumbo mortgage rates can be similar to those of other mortgages, but sometimes they are lower.

Because the absolute dollar figure of the loan is higher than a conforming loan, it is reasonable to expect closing costs to be higher. Some closing costs are fixed, such as a loan processing fee, but others, such as title insurance, are tiered based on the purchase price or loan amount.

Pros and Cons of Jumbo Loans

Benefits

Because a jumbo loan is for an amount greater than a conforming loan, it gives you more options for ownership of homes that are otherwise cost-prohibitive. You can use a jumbo loan to purchase all kinds of residences, from your main home to a vacation getaway to an investment property.

Drawbacks

Due to their more stringent requirements, jumbo loans may be more accessible for borrowers with higher incomes, strong credit scores, modest DTI ratios, and plentiful reserves.

However, don’t assume that jumbo loans are just for the rich. Lenders offer these loans to borrowers with a wide variety of income levels and credit scores.

Lender requirements vary, so if you’re seeking a jumbo loan, you may want to shop around to see what terms and interest rates are available.

The most important factor, as with any loan, is that you are confident in your ability to make the mortgage payments in full and on time in the long term.

How to Qualify for a Jumbo Loan

To qualify for a jumbo loan, borrowers need to meet certain jumbo loan requirements. You’ll likely need to show a prospective lender two years of tax returns, pay stubs, and statements for bank and possibly investment accounts. The lender may require an appraisal of the property to ensure they are only lending what the home is worth.

Is a Jumbo Loan Right for You?

You’ll need to come up with a large down payment on a property that merits a jumbo loan, and some of your closing costs will be higher than for a conventional loan. But depending on where you wish to buy, the cost of the property, and the amount you wish to borrow, a jumbo loan may be your only choice for a home mortgage loan. It’s a particularly attractive option if you have good credit, a low DTI, and a robust savings account. And sometimes jumbo home loans actually have lower interest rates than other loans.

What About Refinancing a Jumbo Loan?

After you’ve gone through the mortgage and homebuying process, it could be helpful to have information about refinancing. Some borrowers choose to refinance in order to secure a lower interest rate or more preferable loan terms.

This could be worth considering if your personal situation or mortgage interest rates have improved.

Refinancing a jumbo mortgage to a lower rate could result in substantial savings. Since the initial sum is so large, even a change of just 1 percentage point could be impactful.

Refinancing could also result in improved loan terms. For example, if you have an adjustable-rate mortgage and worry about fluctuating rates, you could refinance the loan to a fixed-rate home loan.

Recommended: Guide to Buying, Selling, and Updating Your Home

Jumbo Loan Limits by State

The conforming loan limits set by the Federal Housing Finance Agency can vary based on the county where you are buying a home.

In most areas of the country, the conforming loan limit for a one-unit property increased to $726,200 in 2023 (the amount rises for multiunit properties). The chart below shows exceptions to the $726,200 limit by state and county.

Source: Federal Housing Finance Agency

The Takeaway

What’s the skinny on jumbo loans? They’re essential for buyers of more costly properties because they exceed government limits for conforming loans. Luxury-home buyers and house hunters in expensive counties may turn to these loans, but they’ll have to clear the higher hurdles involved.

If you’re interested in refinancing a jumbo mortgage at competitive rates, consider SoFi. You can prequalify online and put as little as 10% down.

FAQ

What are jumbo loan requirements?

Jumbo loans typically require a credit score of at least 700, a low DTI, and a down payment of at least 20%, although there are always exceptions.

What is the difference between a jumbo loan and a regular loan?

A jumbo loan is a home mortgage loan that exceeds maximum dollar limits set by the Federal Housing Finance Agency. Jumbo loans are typically used by buyers in regions with higher-priced housing but are also popular among luxury homebuyers and investors.

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SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

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Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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