Everything You Need To Know About “Jumbo” Home Loans

If you are on the lookout for a pricey property, you may consider applying for a jumbo loan. This will grant you a bigger amount for a home than you would usually get if you avail a conforming loan or a mortgage. In situations where regular mortgage falls short, jumbo loans come into play. Here’s what you need to know about jumbo home loans.

What Exactly Is A Jumbo Loan?

Fannie Mae and Freddie Mac have set certain limitations on a conforming loan. As a consequence, people prefer jumbo loans to lay their hands on a grand property. A jumbo loan is a home loan where the amount is bigger than a conforming loan. In other words, a jumbo loan is sometimes called non-conforming loans. This implies that if a borrower is unable to pay the money back, the lender will definitely come face to face with financial issues. In a nutshell, it’s a lender’s loss in situations like these. Borrowers can avail jumbo loans with either an adjustable or a fixed rate of interest.

Do You Qualify For A Jumbo Loan?

The criteria for such loans are usually stricter since the amount you will be borrowing is large. Moreover, the lender is also at risk. Your credit score, cash reserves, debt-to-income ratio, appraisals, and documentation will be taken into consideration if you apply for a jumbo loan. Plus, your FICO score has to be higher than 700. Sometimes, the requisite figure might go up to 720. Your DTI or debt-to-income ratio is a very important aspect, too. Lenders might be a bit tolerant towards you in case you are having abundant cash reserves. Having adequate money in the bank would automatically qualify you for a jumbo loan. Borrowers need to have a sizeable amount of money in their bank accounts in order to make mortgage payments for a year, and this is the reason why lenders add extra significance to a borrower’s cash reserves. Additionally, documentation becomes essential here. When you want to avail a jumbo loan, you must be well-equipped with all the papers that pertain to your tax returns, 1099s, and W-2s as well. Some lenders put stress on appraisals, too.

Jumbo Loans vs. Conforming Loans

The amount you are borrowing is all that makes a difference between the two. However, there are several other factors such as a larger down payment, greater closing costs, and higher rates of interest, that distinguish a jumbo loan from a conforming loan. Conforming loans are known for its low down payments which is definitely easier if you’re not exactly rich. In case of a jumbo loan, you may require to make a down payment of 20% or more. That might come down to 10%, but that entirely depends on the lenders and how flexible they are. Jumbo loans come with a bigger assured sum and therefore, you need to be prepared to shell out a big amount during the financial closure. Although the mortgage rates for a jumbo loan might be a little on the higher side than a conforming loan, lenders offer a competitive rate keeping conforming loans in mind. A borrower can even lay their hands on a lower rate of interest, but that entirely depends on the current condition of the market.

Loan Limits

Real estate markets vary from state to state. They are expensive in some, and surprisingly cheap in the others. As a consequence, the loan limit in cases of jumbo loans is likely to vary as well. As per 2019, it was revealed that the limit for conforming loans is at $484,350 for one-unit homes. The West Coast and the North-East are comparatively a bit pricey than the rest. Hence, the conforming loan limits can reach a higher figure of $726,525 in these regions. The amount can further go up in some other places.

As you know, there is an ebb and flow in the US property market, just like most things in life. You need to pick the right time to grab and take advantage of lower mortgage rates while borrowing money when buying a new property. Aside from that, shop around and look for lenders that are likely to proffer interest rates that wouldn’t pinch a hole in your pockets.