A jumbo mortgage or jumbo loans are those that exceed the dollar amount of loan servicing limits put in place by Freddie Mac and Fannie Mae. These are non-conforming loans and they typically exceed the yearly limits, currently which are $453,100 in all states except for Alaska, Guam, Hawaii, and the US Virgin Island where the limit is $679,650. The conforming limit is higher in counties with higher home prices as well, so it depends on the specific County in which you’re buying and their loan limits. For instance, if the average home price is far greater than $453,000, the loan limit jumps up to cover the average cost.
The maximum loan amount varies by lender and borrowers can choose either a fixed or an adjustable rate jumbo mortgage with a variety of term options. Really, the only disadvantage of buying a more expensive home is limited access to programs such as FHA, USDA, Fannie Mae, and Freddie Mac. However, these jumbo loans make up the difference and typically are one of the better options when buying a higher-priced home.
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So how do you know if you qualify?
Some higher-priced locations can limit loan amounts up to $726,525 and if you choose a multiunit property, the limits are significantly higher. But, you don’t necessarily need a 20% down payment, which can be a huge chunk, when applying for a jumbo loan. Sometimes these jumbo mortgages have better rates than typical conforming loans. Jumbo loans can accept down payments as low as just 5%, however, with a lower down payment you will be required to pay mortgage insurance and you need to be a strong borrower with high credit. Most credit scores should be at least 660 and a debt to income ratio of under 45% to secure a loan of up to $700,000. If you have a lower credit score of 620, you’ll need to put at least 10% down.
Mortgage rates and guidelines for jumbo loans can vary more than they do for typical conforming mortgages. Rates can literally change half a point any given day of the week and because the loan amounts are higher, that difference can be a lot of money. In 10 years you could save up to $20,000 simply by choosing a less expensive mortgage option.
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If you’re planning on buying a home that is over the average dollar amount for your area give us a call on jumbo loan options. This might be the best program for your needs and your current down payment option.