Some Facts about Jumbo Mortgage Loans

If you are thinking of buying a home in an area where housing prices are high – or if you are considering purchasing a luxury property – you will likely need to think about obtaining a jumbo mortgage loan to finance your new purchase. Here are a few answers to some questions you might have if you are considering such a loan.

What determines whether a loan is considered a jumbo loan?
Each year, the Federal Housing Finance Agency (FHFA) establishes conforming loan limits for mortgage corporations Fannie Mae and Freddie Mac. These corporations may only purchase a mortgage from a lender if the mortgage conforms to those limits. Mortgages that meet the guidelines for these limits are called conforming loans (or conventional loans). Loans that exceed the amount of conforming loans are considered to be jumbo loans.

What are the current limits on conforming loans?
That all depends on where you are planning to buy a home. In most parts of the country, the conforming loan limit is $417,000 for a single-family home. However, in some higher-cost areas, the limit is $517,500 or even higher. Your lender will be able to tell you what the conforming loan limit is for the county in which you are hoping to buy a home. This information is also available online by doing a simple Google search.

What are some factors that might help me qualify for a jumbo loan?
Jumbo loan amounts are larger than conventional loans amount and therefore they carry a greater risk for lenders. Your lender will want to ensure that you are a good candidate to pay back the loan. As with any mortgage, a healthy credit history is essential. Your lender will also carefully consider your debt-to-income ratio to determine the likelihood that you will be able to comfortably pay back the loan, so a low debt-to-income ratio is also an important factor. Being able to provide a sizable down payment will also make you a more attractive candidate for a jumbo loan. Lenders will also be looking for reserve assets after closing. You will typically need to show that you have reserves equal to a minimum of 2-6 months of principle, interest, taxes, and insurance. Jumbo lenders want to make sure you will not be house poor after closing.

What kind of interest rate does a jumbo loan carry?
Historically, jumbo loans have carried higher interest rates than conforming loans. However, conventional mortgage rates (417,000 and under) have been subject to additional government fees causing those rates to be higher. We have seen cases where Jumbo interest rates are lower than conventional rates making jumbo mortgages more attractive than ever for buyers seeking a high-priced property.

If you are thinking of making a home purchase in a high-priced market, talk to your lender about whether a jumbo loan is the right option for you. As with any mortgage, obtaining a loan pre-approval letter from your lender is an important first step before shopping for a home.

For more information, visit www.YourMortgagePlannerForLife.com