What is a Jumbo loan?
Are you looking to buy a larger home? If so a jumbo loan may be a good option for you. A jumbo loan is a home loan that does not conform to the limits imposed by Fannie Mae and Freddie Mac. Fannie Mae and Freddie Mac are two enterprises that are sponsored by the government. There main objective is to buy up mortgages from lenders.
In most counties in the United States a jumbo loan has a limit of $417,000. However, in some parts of the country were the cost of living is a little higher the limit is $625,500.
Of the over 3000 counties in the United States there are only 100 that are eligible for the higher limit of $625,500. In 92 counties the loan limits are higher than $417,000 but lower than $625,500.
Jumbo loans are usually used to purchase larger, single family homes. In some counties in the United States there are condominiums that cost $600,000 or more. For example, in South Florida you will often find borrowers seeking jumbo loans that are as much as $10 million.
After the credit crisis took place in 2008 it became somewhat difficult to get this type of loan. But things have changed and gotten better. More and more jumbo loans are not available. They have also become more affordable.
However, you should still be very careful as problems can arise. One of the most common problems is with appraisals. This is a very common problem that happens all across the board. The property has to appraise out to support the loan the borrower wants to get. But sometimes that just doesn’t happen.
When qualifying for a jumbo loan you will notice the process is pretty much the same as with any other loan. However the requirements are different.
With a jumbo loan the down payments are much higher and your credit score can’t be lower than 700. You will also be required to show that you not only have the income but the assets to pay for the loan.
The maximum debt to income ratio for this type of loan is 45 percent. You will also be required to have at least 6 months worth of reserves in your bank account after closing. With a conforming loan you may only be required to have two months. With a jumbo loan the reserve amount can be up to 20 percent of the loan.
And while you may have to pay out a huge chunk of change up front, there are some great perks that come along with a jumbo loan. The biggest one being the rates on the loan.
These days borrowers are getting some of the best rates in the history of jumbo loans. Your interest will also be tax deductible if the loan amount is less than a million. Overall jumbo loans can be beneficial for those looking to purchase bigger, luxury homes. Just make sure you do your research so you know exactly what you are getting into.