Jumbo loans: 5 things for homebuyers to consider

Victor Polich
Posted by Victor Polich
Mortgage Banking

If you’re buying a home and considering a jumbo loan for a single-family residence, I suggest you learn as much as you can about the product, especially because not all jumbo loans are the same.

Large 3-story house with 2-story detached garage, subtly lit at dusk.A jumbo loan, also known as a non-conforming mortgage, is a plus-size home loan that doesn’t “conform” to the guidelines of Fannie Mae and Freddie Mac, which means that the lender can’t sell the mortgage to either agencies and therefore needs to keep it in its portfolio. Why does this matter? Because the lender takes on more risk by retaining the mortgage in its portfolio, jumbo loan borrowers typically need to satisfy more financial requirements in order to qualify for the loan.

In 2017, the conforming loan size limit for a single-family residence was $424,100 nationwide, but can go higher in certain high-priced markets, such as San Francisco or Los Angeles. So essentially, a loan above $424,100 would be considered a jumbo loan. And with an increase in home prices and interest rates, many potential homebuyers may be considering a jumbo loan.

If you’re interested in applying for a jumbo loan, here are a five things to be aware of:

  1. The underwriting process for a jumbo mortgage may require two appraisals instead of one.
  2. Many lenders may require a credit score of 700 or higher, a debt-to-income ratio of 43% or less, and six to 12 months’ worth of liquid reserves.
  3. Jumbo loans typically require a higher down payment. Depending on the lender, the minimum down payment could range anywhere between 15 and 30% for your home purchase.
  4. While all lenders have different requirements, the vast majority of jumbo loans don’t require Private Mortgage Insurance (PMI). Lenders oftentimes adjust the rate on the loan when less than a 20% down payment is made.
  5. In the past, interest rates for jumbo loans were higher than conforming loans. Now, interest rates on jumbo loans may be similar or even better, which comes as a surprise to many potential homebuyers.

Just as with any other loan, you need to make sure that a jumbo loan is a positive and sustainable fit for your lifestyle and finances. It’s a big commitment, so making sure you’re financially prepared is the first step to take. For additional information on jumbo loans, I encourage you to visit your local mortgage banker.

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