Understanding a Jumbo Loan
Many mortgages out there are conforming loans. This means that they conform to the requirements that Fannie Mae and Freddie Mac establish. If you are looking to purchase a house that is more than the limits set by a conforming loan, you will need a jumbo loan.
What is considered a jumbo loan?
Conforming loans are limited to $424,100 in many areas. However, in a high-cost area, the limits are increased to $636,150. If you are looking to obtain a mortgage for more than these amounts, you will need to obtain a jumbo loan. These loans are available as both fixed rate and adjustable rate mortgages.
Requirements for getting a jumbo loan
With the higher limits on jumbo loans come more requirements and restrictions. Most lenders will be looking for a jumbo loan applicant to have a credit score that is at least 700, when traditional mortgages can be as low as 620. However, lenders are able to work with mortgage applicants and all of these limits are not set in stone.
Where to find a jumbo loan
After the housing crisis happened, many lenders decided to stop doing jumbo loans altogether. The larger amounts of the loan put a larger risk on the lender in the event that you stop paying on your loan.
However, the housing market has improved drastically over the last few years, and the amount of jumbo loans improved to 24% of all mortgages at some of the larger banks in 2015. Banks are some of the only lenders that are doing jumbo loans at this time. The most popular banks to try include JPMorgan Chase, Bank of America, Financial Services Group, Citigroup, Wells Fargo, PNC, and SunTrust Bank.
If you are interested in obtaining a jumbo loan, try starting your search at one of these institutions.
What are the other requirements?
Traditional loans like to see applicants have a down payment of 20% or else you risk paying private mortgage insurance. However, when you are trying to get a jumbo loan, some banks require a 25% down payment instead. Private mortgage insurance is typically not available on jumbo loans.
Lenders also like to see a smaller debt-to-income ratio for jumbo loans. Instead of the 45% maximum for conforming loan, they like to stay closer to 38%. This is due to the fact that the lender is taking on a larger amount of risk on each jumbo loan.
When it comes to loan-to-value ratios, many mortgage lenders will offer up to 90% LTV. Many homebuyers are unaware of this fact and believe that they cannot get approved.
What about interest rates?
In the past, jumbo loans came with higher interest rates than conforming loans. However, times have changed. Many jumbo loans now have rates that are equal to, or even less than, conforming loan rates.
If you are in need of a jumbo loan, this could be a great chance. Banks are working with applicants that can meet the requirements. And with interest rates the same as the rest of mortgage loans, this is a great time to take action.