Jumbo Loans

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Jumbo loans are non-conforming mortgage loans.

What is a jumbo loan?

A jumbo loan is a type of mortgage where the amount is higher than the conforming mortgage loan limits. These limits are set forth by the Federal Housing Finance Agency or FHFA. Because these loans are more than the maximums set forth by Fannie Mae and Freddie Mac, these loans are issued by private lenders but are still considered “qualified mortgages” by the guidelines set forth by the Consumer Financial Protection Bureau.</p

Jumbo loans make it possible to buy more expensive homes, while still getting a competitive interest rate.

Why get a jumbo loan?

In 2019, the loan amounts set forth by the government-sponsored entities, Fannie Mae and Freddie Mac, were capped at $484,350 for a single-unit home in most parts of the country. In some high-cost regions, the loan limits are higher. As a result, if the house you are looking to purchase is more than the loan limit in your area, you will need to get a jumbo loan. This is a more convenient way to finance your dream home, instead of getting two conforming loans.

The amount that a borrower can take out is limited only by the private arrangement between the lender and the borrower. Furthermore, these mortgages can be used as your primary residence, investment properties or as a vacation home.

Jumbo loans are best for high-income earners who do not have a lot of cash reserves or assets yet. These persons are known as HENRY or high earners, not right yet. They likely make between $250,000 and $500,000 annually.

How to qualify for a jumbo loan?

Because the government does not guarantee jumbo loans, they are riskier loans. As a result, they have stricter underwriting guidelines. Fortunately, since jumbo loans are not restricted by any government guidelines, there is some flexibility that conforming loans do not have.

Credit History

You’ll need good credit to qualify for a jumbo loan. A FICO score above 700 is the usual minimum required by most lenders.

Downpayment

In general, jumbo mortgages expect at least a 20% downpayment. Some larger lenders will allow for a smaller downpayment, but you will need to demonstrate strong finances, such as a high income and significant assets.

Income and Assets

As expected, you will need a substantial income to prove that you can afford that expensive property you are considering purchasing. Attractive lenders have a steady and consistent income. Self-employed persons will need to supply additional documents about their profitable business. In general, lenders would like to see liquid assets equivalent to six to twelve months of payments. Some lenders recommend six months worth of payments in liquid assets in a checking or savings accounts, and six months equivalent in retirement assets.

Debt-to-Income Ratio

Lenders want to see a debt-to-income ratio maximum of 43%.

These are guidelines that vary with each individual lender. However, if you can demonstrate strong finances, such as a more substantial downpayment or cash reserves, along with a strong credit score, there is some wiggle room for additional consideration.