In many areas of the United States, home prices have increased to the point where buyers require jumbo loans to finance the purchase. In mortgage terminology, a jumbo loan refers to a loan that exceeds the limits set by government-sponsored organizations that purchase home loans and package the loans for investors.
The jumbo loan, also known as a jumbo mortgage, are loans exceeding the dollar amount any loan-servicing limits put in place by GSE’s Fannie Mae and Freddie Mac.
In 2018, the limits for loans were $450,000 in all U.S. states excluding Guam, Alaska and Hawaii; as well as the Virgin Islands where the limit is $600,000. This conforming limit is higher in counties with increased property prices; therefore, it is essential that you review your area’s loan limit.
The maximum jumbo loan amount differs according to the lender. Borrowers can obtain fixed or adjustable-rate mortgages with various term options. Jumbo Mortgages can be utilized for primary properties, as well as vacation homes or investment properties.
Jumbo lenders tend to have more restrictive underwriting guidelines. The primary reason for this is that Freddie or Fannie do not support them; therefore, they are riskier lenders. On the other side of the coin, lenders tend to gain more as the dollar value has increased and they can offer additional services to their clients.
The three challenges a borrower must meet to gain a jumbo loan approval including higher credit scores, higher reserves, and a larger income. According to the President of the Prodigy Lending company in Houston, the jumbo mortgage scores need to be higher if you are to be considered. The average score is approximately 740; however, Jason states he has seen some as low as 670.
Borrowers who have credit ratings below the average requirements offset it with a low debt-to-income ratio. According to Jason, if you are not high-leveraged and present with a low credit rating, it will be difficult to obtain a jumbo mortgage.
Potential borrowers must also be prepared to provide evidence of reserves or assets that cover between six and twelve months’ worth of mortgage repayments. The deposit on a jumbo mortgage is, on average, between ten and twenty percent. Anything below ten percent down payment and you will probably have to pay higher rates for the loan, according to Jason.
The most significant benefit for all borrowers regarding a jumbo loan is that it allows them to work outside of the Freddie and Fannie limitations. You can maintain a profitable interest rate while financing the house of your choosing without any restrictions by the dollar limit on loans.
The interest rates on jumbo loans tend to fluctuate, meaning they will be lower or higher than the conforming mortgage rate. For instance, a thirty-year jumbo rate was recently calculated at 4.62 percent – eight points less than the standard thirty-year fixed rate of 4.71 percent.
Jumbo mortgages are highly convenient methods of financing a property. Instead of gaining two conforming loans to finance a property, the jumbo loan removes the need. While certain borrowers prefer financing the house’s cost instead of tying up cash, this makes the jumbo loan highly beneficial.
Prodigy Lending is a DBA of AmCap Mortgage, Ltd. (NMLS ID# 129122 – www.nmlsconsumeraccess.org/EntityDetails.aspx/COMPANY/129122), an Equal Housing Lender.
Managing RMLO: Jason Turner (NMLS #286357)