Jumbo Mortgage Loans – What are they and when would I use one?


Jumbo mortgage loans – when do you need one?

Jumbo mortgage loans 

Homebuyers often wonder what type of mortgages are available to them. When buying a home, you’ll be faced with various financing options. Choosing the best option will depend on several factors, including your personal circumstances as well as the type (and price tag) of the home you are buying. Jumbo and conventional mortgages are two financing options available to borrowers.

Jumbo vs Conventional – what’s the difference? 

Conventional mortgage loans are – as the name suggests – the usual means of financing your average home purchase… but what if you’re not buying an ‘average’ home? That’s where jumbo mortgages come in.

What are jumbo mortgage loans? 

A jumbo mortgage loan is used to finance expensive property purchases such as luxury homes or properties in highly-competitive real estate markets — homes that are too expensive for conforming conventional loans. $510,400 is the maximum amount of a conforming loan in most U.S. markets. Properties priced above the maximum threshold are generally financed with jumbo mortgages — a nonconforming loan. Nonconforming loans don’t meet the requirements of Government-sponsored enterprises (GSEs) so jumbo mortgages are not backed by Fannie Mae or Freddie Mac.

Eligibility 

Because they are not backed by Government-sponsored enterprises (GSEs), jumbo loans are riskier for lenders so the eligibility criteria are stricter. Borrowers will be expected to have a good credit score (usually a minimum of 670), a low debt-to-income (DTI) ratio and more liquid assets (at least enough to cover 6 months’ mortgage payments). You’ll need to provide 2 years’ tax documentation to prove you have a regular, reliable, high income to afford a jumbo mortgage.

What will it cost to take out a jumbo loan? 

Down payments are typically higher for jumbo mortgages than conventional mortgages to reflect the additional risk to lenders. Historically, this was as high as 30%. Nowadays, you can expect to pay 10-20% as a down payment.

Rates on jumbo mortgages can be higher too, so it’s imperative you shop around to find a lender offering competitive rates. Rates vary depending on market conditions, so you may even be able to get lower rates than those on conforming loans.  

Finally, closing fees are normally heftier than for conventional loans. Some closing costs such as title work are calculated on your loan amount, so a larger loan amount means the title fees will be higher. Appraisals may also be more expensive if the property is larger than average.

A loan officer can provide you an estimate of what fees to expect in your particular financing scenario.

How have Jumbo mortgage loans been affected by COVID-19? 

Jumbo mortgages were among many things affected by COVID-19 earlier this year, but the pandemic pause is now over. As the housing market recovers, the availability of jumbo loans is increasing. However, the uncertain economic climate has had two key impacts on jumbo loans: as job losses continue, it will be harder to qualify for a jumbo loan BUT if you are approved, you could benefit from significantly lower interest rates.

Key takeaways 

A jumbo mortgage loan is a finance option for purchasing high-value properties (when your loan amount is greater than $510,400). You will have to meet more stringent guidelines to qualify.

Want to know more? Let us have a loan specialist give you a quote of the rates and fees for your loan.

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