Jumbo Mortgage Loans
In a Nutshell
What areJumbo MortgageLoans?
It’s likely you’ve heard the names Fannie Mae and Freddie Mac as you’ve started your mortgage application research. While you may have heard of those entities before, you may not yet be familiar with the term “conforming loan”. Simply put, a conforming loan is a loan that can be bought and sold by Fannie Mae and Freddie Mac, requiring the loan to fall under a certain dollar amount.
These loan amount limits are dictated by the Federal Housing Finance Agency (FHFA), and they change every year. A conforming loan is one that falls under the annual loan amount limit. A non-conforming loan is one that exceeds that limit, and is what jumbo mortgage loans are designed to accommodate.
What to Know Going In
Loan Requirements
Because jumbo loans are designed to fund non-conforming loans that exceed FHFA annual limits, they are considered much riskier than other types of loans and, therefore, have elevated requirements for approval.
Down payment is just one area of jumbo mortgage loans that demand more from borrowers. A minimum of 20% or more is required to fund a jumbo loan. Debt-to-income ratio, credit score, cash reserves and other factors are also under higher scrutiny when applying for a jumbo loan. Due to their increased level of risk, interest rates can also be higher than other types of loans.
The Upside
Benefits of Jumbo Mortgage Loans
If a mortgage is required to purchase a new home, jumbo loans are often the only means of financing higher end, highly priced and/or luxury properties. This is a highly advantageous aspect of shopping for homes in competitive or saturated markets where average property prices are greater than other areas.
Jumbo mortgages can also be a great option for purchasing second homes, investment properties, vacation homes and/or large acreage lots in expensive areas.
While interest rates can be higher than those of other mortgages, it’s not true that that’s always the case. Well-qualified borrowers can often benefit from interest rates that might even be lower than other types of mortgages. Primary mortgage insurance is also not a requirement of jumbo loans, which can contribute to substantial monthly savings and a significant reduction in the total cost of the loan over its lifespan.
How to Determine if a Jumbo Mortgage Loan is Right For You
Meet with a mortgage advisor early in the process of applying for a loan to help solidify the right option for your situation. We’re here to help determine the type of loan that’s best for you.