A jumbo loan, or a jumbo mortgage as it is sometimes referred to, is a mortgage that is larger than the conventional FNMA loan limits. It is a type of loan that makes it possible to purchase the high-priced home, where borrowers need larger mortgages.
Many people do not realize that there are lending limits across the United States, often varying from state to state; and within the states, from County to County. All conforming loan limits are established by regulation, and for the majority of US states and counties, they are $417,000. The Santa Clara, San Mateo, Contra Costa, and other Northern California Counties (called “high cost areas), have a higher limit at $625,500. A jumbo mortgage is considered a loan amount that is higher than these limits. (If you are in other Counties please check to see what your lending limit may be).
Traditionally, the interest rates on the jumbo loans have been higher than for regular mortgages. However, in the past few months, these rates have dipped down to historical low points, often lower than rates given on conforming loan limits. The investors who offer these loans tend to give lower rates when a borrower has an extremely high FICO score (over 760) and a lower loan to value (generally under 60%).
If you are looking at a more expensive home or currently have a higher loan amount than “conventional”, now is the time to check your mortgage payments. As with the lower rates, the payments will be lower than anticipated. (A refinance might be appropriate at this time).
Although the loan qualifying process is similar to the regular mortgages, there are a few differences in the qualification requirements. First of all, a down payment for a jumbo loan is usually higher – 20%-30%. Most lenders also require borrowers to have a higher credit score of at least 700 and a debt-to-income ratio that’s 43% or lower to show their financial strength and qualify for the loan. (On the conventional loans, lower down payments and higher debt-ratios are often allowed.)
To qualify for a jumbo mortgage, borrowers should also have at least 6-12 months worth of reserves left in the bank after closing (sometimes more, depending on the loan amount). Call today if you are in the market for a new jumbo loan, and we will show you the options available on both adjustable and fixed rates.
All in all, a jumbo mortgage is great option for financially-strong borrowers who want to purchase a high-priced home.