What Is A Jumbo Loan?

What Is A Jumbo Loan?
What Is A Jumbo Loan?
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Jumbo loans are mortgages that exceed $417,000 which is the traditional mortgage limit, also known as the conforming loan, for single-family mortgages. The conforming loan limit is the maximum amount that will be backed by Fannie Mae or Freddie Mac. However, the real estate market is not the same in every city, so in some places the jumbo loan threshold is higher. For example, in Alaska and Hawaii the conforming loan maximum is $625,000, so jumbo loans would be made for a larger amount. Jumbo loans are used to purchase higher priced homes.

Qualifying For a Jumbo Loan

It is not easy to qualify for a jumbo loan even if you have $1 million in liquid assets. Qualifying for a traditional mortgage loan means jumping through several hoops, and there may be more hoops to jump through for a jumbo loan. You will need to have all of the documents that will support your income from all sources. Tax returns and bank statements will also be required. It is nearly mandatory that you have at least six months of cash that could be used to make the payments on the jumbo loan. This requirement could be stricter if you work for yourself.

Your debt-to-income ratio must be below 36% if you are applying for a traditional mortgage loan. This ratio is calculated by dividing the total monthly debt payments by your monthly income. Jumbo loan applicants will need a significantly lower debt-to-income ratio. The ratio requirement may vary between jumbo loan lenders. However, it will not be as high as 36%.

An excellent credit score is essential when applying for a jumbo loan. Most jumbo loan lenders look for a credit score of at least 700. Keep in mind that credit scores are created by a variety of credit bureaus and by the independent FAIR ISSAC score organization.

Favorable Interest Rates are Available For Jumbo Loans

As recently as 2008, jumbo loans were not available, and if they were, the interest was higher than for traditional mortgage loans. However, borrowers looking for jumbo loans today will find that interest rates are slightly lower. The reason is people who apply for jumbo loans are viewed as less likely to default on the mortgage or fail to make payments on time. Many applicants are high-income earners with substantial assets. They are also considered to be financially stable through any economic downturn.

As with any mortgage, it pays to shop for the best jumbo loan deal. Jumbo loans come in a variety of adjustable and fixed interest rates. You might find investors among the secondary mortgage market.

Look at your finances carefully. Find the best jumbo lender for your needs. Be sure that you can make the long-term commitment to making the mortgage payment along with the high taxes and property insurance.

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