What Is A Jumbo Loan

If the house of your dreams doesn’t fit in with standard sizes or costs, you might need to consider a jumbo loan. This term is defined as a loan that goes beyond the conforming loan limits established by the government-sponsored enterprises Fannie Mae and Freddie Mac. In the majority of locations across the country, the conforming limit is $417,000 for a mortgage, but it is increased up to $625,500 in areas where the costs are higher. Out of the 3,300 counties located in the country, only 100 or so are eligible for this increased limit.

Homes For Jumbo Loans

Bigger single family homes are the most common type of abode for those seeking a jumbo loan. Depending on the location, a family could simply be looking for an average-priced to moderately-priced home, but others in different areas might be seeking a more luxurious home to move into. In many cases, the buyer connected to a jumbo loan is an executive, CEO, or president of a company. Now that the housing market is finally showing signs of recovery, making jumbo loans more readily available to people who need them.

In some more expensive areas to live, even condominiums for purchase can exceed the limits of a conforming loan. That’s what lead some buyers into the market for a jumbo loan because it’s the only opportunity for them to obtain their home. Choosing a jumbo loan can be a good solution for some lenders, but it’s important, like with all loans, to be clear about the requirements and stipulations before proceeding.

Qualifying For A Jumbo Loan

For the most part, the underwriting procedure for a jumbo loan is very similar to a conforming mortgage, but there are some separate requirements. With no private mortgage insurance in a jumbo loan, the buyer will need to pay a bigger down payment.

As a general rule, lenders don’t want to see credit scores lower than 700. When buyers are seeking out bigger homes that exceed the limits of a conforming loan, they will need to provide proof about the income and assets to support such a loan. In addition, the highest limit for debt-to-income ratios is 45 percent, and the borrower will need to have six months of reserves set aside in their bank account prior to the closing.

Even though borrowers might need to come up with some serious money for a down payment, there are advantages of choosing a jumbo loan. For example, jumbo loan rates are extremely loan right now, and any interest on loans up to a $1,000,000 mark are tax-deductible. Since the market for jumbo loans is smaller than conventional loans as a result of the increased risk that lenders face in making these available, a borrower might not have as many options about who they will work with.

Make sure you are clear about the special requirements of a jumbo loan.

Options Beyond Jumbo Loans

Although a jumbo loan might be a good fit for your needs, it’s not your only option. You might be able to increase your down payment in order to reduce the amount of money that you are borrowing. If you are looking at a loan that is just above the conforming loans limit, this solution could work for you.

A bigger down payment can help you reduce your loan amount.

You could also look into the option of getting a combination loan. Borrowers would need to take out a second and smaller mortgage at the same time they obtained the first one. Using this option could help your other mortgage meet the requirements of a conforming loan and avoid the requirements of a jumbo loan.

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