February 4th, 2020 8:40 AM by Jackie A. Graves, President
You may need a jumbo
loan for homes that cost more than $510,400. Jumbo loans have stricter
What is a jumbo loan?
A jumbo loan is a mortgage used to finance properties that are too
expensive for a conventional conforming loan. The maximum amount for a
conforming loan is $510,400 in most counties, as determined by the Federal
Housing Finance Agency (FHFA). Homes that exceed the local conforming loan limit require a jumbo loan.
Also called non-conforming conventional mortgages, jumbo loans are
considered riskier for lenders because these loans can’t be guaranteed by
Fannie and Freddie, meaning the lender is not protected from losses if a
borrower defaults. Jumbo loans are typically available with either a fixed interest rate or
an adjustable rate, and they come with a variety of terms.
Underwriting criteria for jumbo loans are stricter because the
loans are larger and riskier for lenders.
Lenders may require your FICO score to be higher than 700, and
sometimes as high as 720, to qualify for a jumbo loan.
Lenders will also consider your debt-to-income ratio (DTI) to ensure you don’t become over-leveraged, though they may be
more flexible if you have plentiful cash reserves. Some lenders have a hard cap
of 45% DTI, however.
You’re more likely to be approved for a jumbo loan if you have
ample cash in the bank. It’s not uncommon for lenders to ask jumbo loan
borrowers to show they have enough cash reserves to cover one year of mortgage
To prove your financial health, you’ll need extensive
documentation, perhaps more than for a conforming loan. You should be prepared
to hand over your full tax returns, W-2s and 1099s when applying, in addition
to bank statements and information on any investment accounts.
Some lenders may require a second appraisal of the home you’re
planning to purchase.
The key difference between a jumbo mortgage and a conforming loan
is the size of the loan. For a thorough look at the two, and the pros and cons
of each, read about the differences between conforming and nonconforming loans.
Among the other factors that differentiate jumbo loans from
While low down payments are fairly common on conforming loans,
jumbo loans are more likely to require a down payment of at least 20%,
though some lenders may go as low as 10%.
Jumbo mortgage rates may be slightly higher than those on conforming loans, depending
on the lender and your financial situation. However, many lenders can offer
jumbo loan rates that are competitive with rates on conforming loans — and some
may even offer slightly lower rates depending on market conditions, so make
sure to shop around.
Because jumbo loans are bigger and there are some extra qualifying
steps, expect higher costs at the closing table.
The loan limit for conforming loans varies by county because some
real estate markets are much pricier than others. For 2020, the conforming loan
limit for one-unit homes in most counties nationwide is $510,400. However, in
“high-cost areas,” especially in the Northeast and on the West Coast,
conforming loan limits are expanded to $765,600 — and even higher in a few
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