What is a jumbo loan?
A jumbo loan is a mortgage loan that exceeds the limits set by the Federal Housing Finance Agency.
The maximum amount for a conforming loan is $647,200 for a single-family home in all states except Hawaii and Alaska where the limit is $970,800.
Jumbo Loans:
Jumbo loans are available for primary residences, second homes, and investment properties.
They are considered non-conforming loans because they don’t meet Fannie Mae and Freddie Mac’s standard purchase.
Interest rates for jumbo loans are higher, have stricter underwriting rules, and require a much larger down payment because they don't have guarantees as conforming loans do. The lender isn’t protected from any losses if the buyer decides not to make a payment. Jumbo loans are available at a fixed interest rate.
Conforming loans and non-conforming loans
The difference between a conforming and non-conforming loan is the loan amount.
To get a conforming loan, you’ll have to shop for houses that are in a specific price range so that they stay under the price limit of $647,200.
The down payment requirement for a conforming loan is way less than that of a non-conforming loan. Jumbo loan lenders require a minimum down payment of at least 20% or more, have tighter credit qualifying criteria, and have higher mortgage interest rates. The national average 30-year fixed jumbo mortgage APR is 5.220%. The average 15- year fixed jumbo mortgage APR is 4.570%.
Most lenders offer conventional loans because there are no special eligibility requirements. You can qualify with a FICO score of 620, a down payment of 3%, a debt-to-income ratio that is lower than 43%, and much lower interest rates. The national average 30- year fixed rate mortgage is 4.5%. The average 15- year conventional loan is 3.875%. Conventional loans are the most common mortgages to buy or refinance a home. They make buying a home more affordable.
How do you qualify for a jumbo loan?
In order to qualify for a jumbo loan lenders require you to have a credit score of 700 or 720. They will also consider your debt-to-income ratio to ensure that you aren’t over-leveraged. The hard cap for most lenders is 45% (DTI). If you have enough money in your bank the chances of getting a jumbo loan are high. The borrower must verify that you have enough money to cover one year of mortgage payments. Some documents that you should have at hand are your full tax returns, W-2s, and 1099’s as well as your bank statements. Some lenders will ask for a second appraisal.
