Jumbo Loans

A jumbo loan is also referred to as a “non-conforming mortgage” or a jumbo mortgage. It is a loan that is used to finance properties that exceed the conforming limits set by the Federal Housing Finance Agency (FHFA) and is not guaranteed Fannie and Freddie. Jumbo mortgages are designed to finance primary residences, investment properties, luxury homes or properties in highly competitive markets. As the name suggests jumbo loans are bigger than the conforming loans. They are considered as risker mortgage loans as they are not guaranteed by Fannie and Freddie and so not protected from losses if a borrower fails to honor the loan. Jumbo loans are usually available in a variety of terms including fixed interest rate or an adjustable-rate. Jumbo loans also come with stricter underwriting rules, tax implications, higher interest rates and larger down payment than a standard mortgage. The limits of a jumbo mortgage vary from state to state and even county to county. The loan limit for different locations is set by the FHFA on an annual basis.

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Jumbo Loan Requirement

The eligibility criteria for jumbo loans is based on the basic formula and eligibility as other mortgage loans. It depends on credit score, debt-to-income ratio, income, cash reserves, property-type, and property use.

Credit Score

The credit score requirements for jumbo loans are higher than some conforming mortgage programs. For a standard jumbo loan, the lenders may require a credit score of at least 680.

Debt-To-Income Ratio

The allowable debt-to-income ratio for a jumbo loan will be lower than a conforming mortgage to ensure that you do not become over-leveraged. To qualify for a jumbo loan the DTI limit is 43 to 45% or lower if you have a lot of cash reserves.

Cash reserves

Most lenders require the borrower to have some cash available for an emergency. The cash reserve requirement for a conforming loan is as little as one month’s housing expenses, however, for jumbo loans borrowers need to show cash reserves to cover one year of mortgage payments.

Documentation

For jumbo loans, you will need more extensive documentation than a conforming loan. You need to keep ready full tax returns, W-2s and 1099s to hand over when applying, in addition to any investment accounts and bank statements.

Appraisals

Some mortgage lenders may want a second appraisal of the home you plan to buy.

Benefits

  • You can get competitive interest rates to finance your home without being restricted as there is no cap on the specific amount of money you can borrow like conforming mortgages
  • Purchase a home with as little as 10% down payment.
  • You can avail of a jumbo loan for investment properties, second homes, and primary homes located over an area up to 40 acres.
  • Veterans and service members who are eligible for a jumbo VA loan can purchase a home with a much lower down payment as compared to other conforming loans.
  • It is helpful to borrowers who wish to finance more of their home’s cost instead of tying up their cash.

Jumbo loans may sound like the stuff for millionaires but this is not necessarily true. A person who lives by paycheck to paycheck can also avail of these loans. Though it is a larger debt than other home mortgages, it can be the right kind of mortgage for you if to want to finance a big piece of property or you are interested in a 2nd mortgage. However, just make sure you can afford to continue with the payments as it is not worth jeopardizing your financial future for a home no matter how beautiful it is.

Contact our experts at (877) 877 7575 for any queries and more information.