Are you wondering what jumbo mortgage loans? Or perhaps you’re even thinking of applying for one yourself? Well, before you do, it’s important to know exactly what jumbo loan is and who it is for.
In today’s article, we will be talking about all there is to know about jumbo mortgage loans. From its definition and how it differs from a conventional mortgage to loan limits, and whether or not you might need one.
Let’s get started!
Understanding jumbo loans
So, what is a jumbo loan?
Also known as a jumbo mortgage or jumbo mortgage loan, a jumbo loan refers to home loans that are greater than the typical limits established by the Federal Housing Finance Agency (FHFA).
There are a variety of property types you can purchase with this loan, including primary residences, second homes, holiday houses, and even real estate for investing. They are typically used for luxury homes in competitive neighborhoods.
A jumbo loan is usually available with higher interest rates, strict regulations and rules, as well as a larger down payment (up to 15%). This makes sense consider the amount of money that the lender is entrusting to you.
In terms of the loan itself, you can choose between a fixed-rate or an adjustable-rate term, just like with any standard mortgage. But again, remember that the credit requirements are much more rigid and stringent. You will need to have a good credit score with a low debt-to-income ratio, which will ensure that you can repay the loan in due time.
Jumbo mortgage loans VS conventional mortgages
Jumbo mortgages and conventional mortgages different in a lot of ways, but mainly in terms of the loan limit as the former covers amounts that exceed the threshold of the latter.
A jumbo loan is designed for larger loans, at least $500,000 but possibly more. Another major difference is that it is not backed by Fannie Mae or Freddie Mac. Plus, they have more rigorous requirements.
On the other hand, conventional mortgages are a more general term where the loan amount meets the current threshold. They can also be offered to Fannie Mae and Freddie Mac.
They do have similarities, though, in terms of borrowers having to meet specific eligibility requirements. This includes things like credit score, income verification, down payment, and other financial information. However, a jumbo mortgage loan is harder to qualify for as they usually have higher standards.
Both types of loans are also issued and supported by private lending companies, instead of governmental bodies in the case of FHA and VA loans.
Of course, at the end of the day, both of them are intended to help borrowers buy the home of their dreams. Jumbo loans are just made for those who would like to purchase an expensive, usually luxurious, property.
Jumbo mortgage loans limit
In most states across the USA, Fannie Mae and Freddie Mac loans allow for amounts of up to $647,200 for a single-family residence. Some states like Hawaii and Alaska have a larger limit because the real estate market there is much more expensive.
In 2022, the aforementioned figure is the baseline limit for a jumbo loan. This has increased from only $548,250 in the year before this.
And yet the important question remains: how much can you borrow with a jumbo loan?
The answer varies for each individual, because it depends on your specific financial situation and purchase. From your credit score, assets, and income to the property’s worth. You can find out the exact number with your lender.
With that said, remember that knowing your loan amount does not mean that you have to buy a house that costs exactly that. It’s important to make sure that you buy properties that you know you can afford.
Do you need a jumbo loan?
In general, a jumbo loan is most ideal for high-income earners who can afford a higher interest rate, monthly payment, and down payment. We would say that these are people who comfortably earn a minimum of $250,000 every year but less than $500,000. This is because they are high earners but don’t have too much extra cash either.
Moreover, if you want to qualify for a jumbo loan, you will need to have an impeccable credit history. Most applicants would also already be working towards their retirement savings for a solid amount of time.
If you do not fall into this category, then it’s most likely that you would benefit more from applying to a conventional mortgage. Another tip is just because you meet the requirements for a jumbo loan, does not mean you have to take it out!
All in all, a jumbo mortgage loan is just a loan where the amount surpasses the conventional limits. Now that you understand more about this loan type, do you think it’s right for you?