Jumbo home loans, also known as non-conforming conventional mortgages, are loans specifically for mortgage amounts that exceed the limits set by Fannie Mae and Freddie Mac, two of the largest government-sponsored enterprises that buy most of the home loans in United States. Basically, jumbo mortgages are designed for buyers looking at high-value properties. Let’s discuss the specifics of jumbo loans, who qualifies, and the process of getting one.
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What Is a Jumbo Home Loan?
Jumbo home loans are mortgages designed to finance properties that are larger-than-normal in terms of loan amount. These non-conforming conventional mortgages, or jumbo mortgages, are used to finance the purchase of primary residences, investment properties, and vacation homes that are of high value or to refinance existing loans.
So, what qualifies as a larger-than-normal mortgage amount? According to the Federal Housing Finance Agency (FHFA), the national conforming loan limit for mortgages varies based on location and is determined by a formula established under the Housing and Economic Recovery Act of 2008 (HERA). You can check the FHFA’s 2021 limits by county on the FHFA website.
Generally, however, the loan limit for most of the country is around $548,250. This amount is higher for different areas of the country, such as California, New York, Alaska, and Hawaii. Homes that exceed the conforming loan limit for the county they’re located in will require a jumbo home loan to finance.
The Pros and Cons of Jumbo Loans
With a jumbo loan, borrowers are able to finance larger amounts. This can be beneficial both in terms of affording larger homes and as a part of a strategic investment strategy.
However, there are disadvantages to jumbo loans. For starters, jumbo home loans tend to require larger down payments, amounting to at least 20% for many lenders but as low as 10% for others. This is because of the high level of risk involved in financing such high amounts.
Jumbo mortgages can also potentially have higher interest rates than conforming loans. Of course, this depends on the lender and the borrower’s specific financial situation. Next, jumbo loans are also more difficult to qualify for. This is often not an issue for borrowers with high incomes, high credit scores, and low debt-to-income ratios, but it can be a struggle for conventional borrowers who live in areas with very high home values. Finally, many jumbo mortgages require higher closing costs than conventional mortgages.
Jumbo Home Loan Requirements & Process
Because the loan amounts that jumbo mortgages finance are much larger and more risky to finance than those of conventional loans, qualifying for a jumbo home loan is more difficult. There are fewer lenders that offer jumbo loans and, as a result, borrowers are limited to the remaining lenders’ specific (and often stricter) qualifications.
The qualifications listed above may vary depending on the lender, so it’ is always good to do your research and compare offers from different lenders. However, keep in mind that there are fewer lenders out there that offer jumbo home loans.
In order to receive approval for a jumbo home loan, you’ll need to meet certain requirements. They include:
High credit score.
Most lenders require a FICO® credit score of higher than 700 (sometimes even upwards of 720).
Low debt-to-income ratio.
Many lenders require a debt-to-income ratio of 45% or less, but some may be flexible if the borrower has larger cash reserves.
High cash reserves.
Many jumbo loan lenders only approve mortgages if borrowers have a large amount of cash reserves (or liquid assets) in the bank.
Adequate financial health documentation.
To prove that the borrower can afford the mortgage payments, many lenders require extensive financial health documentation such as proof of income, bank statements, investment account information, and more.
Jumbo mortgage lenders often require their own appraisal of the property to assess the value of the home before financing.
Benefits of Choosing The Home Loan Expert for Your Jumbo Loan
When you finance your jumbo loan through The Home Loan Expert, you’ll benefit from:
- Down payments as low as 10%
- Having your choice between fixed- and adjustable-rate options
- Loan amounts as high as $6 million
- Ability to use alternative income documentation (bank statements, 1099s, profit and loss statements)
- And more!
Let The Home Loan Expert Help!
For buyers in the market for a jumbo loan, there are many factors to consider and options to weigh. However, the process doesn’t have to be difficult. By partnering with an experienced home loan Expert, home buyers can more easily buy or refinance their dream home with a jumbo mortgage.
At The Home Loan Expert, our team is unmatched when it comes to helping borrowers understand jumbo loans, find the right loan for their needs, and qualify. We’ll walk you through the process step by step, ensuring that you understand everything and get your loan closed on time.
Even better, with our easy-to-use mortgage calculator, you can easily get an idea of the various loan options available to you. And our team is always ready to help! Contact us to see how easy owning a high-value home can be!