Before we discuss jumbo loan in depth, of course you already know that when you buy a house or property, you need a loan or mortgage to be able to help you finance the purchase. Therefore the federal government has set a maximum limit on the amount of borrowing that is allowed. But what if you need a large loan? Now this is where the role of the jumbo mortgage is needed.
So what is a jumbo loan? In general, this is a type of home loan that can provide you with large funds that are different from the amount of funds for conventional loans. You need to meet the requirements given to be able to get jumbo loan rates according to your needs. Then how about this jumbo loan explanation in more depth? Here we provide a more detailed description for you.
First, Let’s Discuss More Deeply about What is A Jumbo Loan
What is a jumbo mortgage? Jumbo loans are mortgage loans where this jumbo loan amount is greater than other mortgage loans and indeed the amount exceeds the limit set by Fannie Mae and Freddie Mac, which are government-sponsored institutions to help provide loans to US citizens. Usually you need this jumbo loan if you buy an expensive house like houses in the Silicon Valley area.
So now you know that the jumbo loan is designed for expensive and upscale properties where the property exceeds the conventional loan limit. For your additional information, the loan limit is set by the Federal Finance Agency (FHFA) and is updated annually. Most areas of the USA are limited to $647,200 for the conventional loan amount. So when you make a loan that exceeds that amount, you have to make a jumbo loan.
To better understand this jumbo loan, we provide another explanation about this in the following points.
- When you reach the allowed loan limit or do not meet the requirements set by the standards that have been made by the Fannie and Freddie company, then you need a jumbo loan down payment. Therefore, this type of loan is often referred to as a non-compliant loan and is not available as a loan with a fixed interest rate or an adjustable rate loan.
- This type of has a larger loan amount than usual. This type of loan is only used for primary homes, investment properties, and vacation homes.
- Jumbo mortgage rates vary depending on the lender and location. Guidelines for requirements also vary.
- Because the market for this loan is smaller than other loans that are commonly used, you need to do a lot of research to be able to find this loan provider that suits your needs.
- You should also know that the loan rate for this type of loan is often different from the corresponding loan rate. But this loan doesn’t have much difference from conventional loans, especially in terms of payment schedules and other details.
- Borrowers can make this loan with a fixed interest rate or can be adjusted according to a variety of term options provided by the lender.
- But you need to know that this loan is considered riskier than other types of loans. That’s because this loan is not guaranteed by Fannie and Freddie. That means the borrower is not guaranteed the risk of loss that they may experience later.
- This loan certainly has a higher interest rate than other types of loans. The guarantee rules are also stricter with a larger down payment than the existing standard mortgage.
If you really want to buy a house that is bigger or more expensive than usual, then you need to consider using this jumbo mortgage. That’s because these loans can help you get the financing you need. Even the CEO of PCMA, John Lynch, said that if you are a real estate investor, it would be great if you use a jumbo mortgage to help you buy new property that is expensive and good. Not only that, the interest rate on this loan can be lower for investors. Of course it is adjusted again with the relevant lending institutions.
In Discussing Jumbo Loans, You Have to Know Some of The Following Specific Things to Apply for The Jumbo Loan
First, we will discuss what are the requirements needed to be able to get this jumbo loan. Of course, this loan does not provide easy conditions. There are special and strict conditions that you must meet to get this loan. This is because this type of loan does have a larger loan amount, so the lender will require many qualifications so that it is not too risky later.
- Credit score: Lenders will usually ask for a FICO score where the score must be higher than 700 or generally around 720.
- Debt-to-income ratio: Lenders will of course also ask for a debt-to-income ratio (DTI). This is done to ensure that you do not experience excess leverage. In general, most lenders will ask for the ratio to be around 45%.
- Cash reserves: You are more likely to meet the jumbo loan requirements if you have a lot of money in the bank. Indeed, for this type of loan, the lender will usually be more interested if the borrower has sufficient cash reserves to be able to meet his mortgage payments for one year.
- Documentation: Lenders want to know the condition of your financial health. Therefore, they need your documents which are extensive and more detailed than the documents required for other loans. You must submit a complete tax return document, a W-2 document, and also a 1009 when submitting a loan application. You also have to attach bank statements and investment information or other assets that you have.
- Valuation: There are also lenders who require a second home appraisal for the property you are going to buy. This is done by them to be able to assess whether the property is in accordance with the terms or qualifications and also as a way for them to be able to calculate how much is a jumbo loan that they can provide.
Here we show you some important points for those of you who really want to do a jumbo loan. There are several conditions or qualifications that you must meet to get the loan. This type of loan actually has conditions that are quite difficult to fulfill. In addition, not all lending institutions provide this type of loan. This is because the larger the loan, the longer it will take to pay it off, so the risk is of course also greater. You may still have the opportunity to get this loan, it’s just that the interest rate you have to pay will be higher than conventional loans and it may be quite difficult for you to meet the conditions.
Lynch provides his views on clients who usually qualify or qualify for these loans. Here we provide some of the qualifications so that you have a great opportunity to be able to get this loan.
- The loan amount usually amounts to $1,004,302.89
- Loan to value ratio or LTV is 61.24
- FICO score is 740
- Borrower’s age is around 61 years
- 59 year old co-borrower
- Years of living at home is 16 years
- Lenders also require higher credit scores than other conventional loans.
- The loan-to-income ratio you must have is 36%-43%.
This loan also has a jumbo loan limit where if you want a loan amount that is greater than the jumbo mortgage limit, the lender or bank will worry that you will not be able to repay the loan. Therefore, you must be able to convince them by providing evidence of your ability to pay the loan such as the amount of savings you have and reserve funds.
The down payment required for this jumbo loan is also quite large. Usually lenders will ask for a minimum of 3% for a down payment and some recommend a down payment of 20%. But in general, lenders for this loan will require a down payment of 15%-30%. Some additional assessment may also be required for this loan, so you must prepare all the required documents in full.
However, there are currently several jumbo loan rates available. These rates depend on the term of the loan.
- For loans with a term of 30 years, the interest rate is 6,070 and the APR is 6,080.
- For loans with a term of 15 years, an interest rate of 5,440 and an APR of 5,460 . apply
- For a 5/1 ARM Jumbo loan, the interest rate is 4,630 and APR 6,380
- For a 7/1 ARM Jumbo loan, an interest rate of 5,510 and an APR of 5,740 is applied.
You can choose the type of rate based on your needs and abilities. Make sure you don’t push yourself and actually choose the jumbo loan amount that suits your needs. Do not let you choose a loan amount that exceeds your ability limit, because it will make it difficult for yourself later. Therefore, it is very important to do research and calculate costs before applying for a loan.
For the jumbo loan limit itself, of course, it has also been set in accordance with applicable loan standards. The standard is created by the Federal Housing Finance Agency (FHFA) annually and has many variations depending on location. Areas with a high cost of living will have a loan limit that is higher than the baseline. Well, any loan that falls below this limit is called a suitable loan. Meanwhile, loans that are above this limit are called jumbo loans. Here are some of the limits of this loan that are in some areas of the USA by 2022.
- $647,200 is the loan limit in most areas of the USA.
- $970,800 is the limit for existing loans in high-cost areas of the USA.
You can find other loan limits and according to your current area. You can use an interactive map of loan limits that comply with FHFA standards to make it easier for you to find the loan limit you need.
You Already Know What is A Jumbo Mortgage and Its Terms, Now It’s Time to You to Know What is The Difference Between This Jumbo Loan and Conventional Loans
Jumbo loans and conventional loans are types of mortgage loans that are used by borrowers to be able to buy the house or property they need. Both types of loans certainly require these qualifications such as a minimum credit score, income, repayment ability, and also a down payment. This is done to determine the eligibility of the borrower. Both are also types of loans issued and underwritten by lenders from the private sector. This is different from loans guaranteed by the government such as FHA loans, VA loans, and USDA loans.
- Jumbo mortgages and conventional loans both have the goal of securing property.
- However, of course, these two loans have differences. Jumbo mortgages are used to buy property or houses at high prices which usually reach millions of dollars.
- Meanwhile, conventional loans are smaller and fit the needs of the average home buyer. Conventional loans can also be purchased by companies such as Fannie and Freddie, while jumbo mortgages cannot be guaranteed by these companies.
- The risk of jumbo loan is also much higher than conventional loans. This is of course because the number of loans given is also larger than conventional loans.
- The conditions given to be able to obtain a jumbo mortgage are also much more numerous and complicated. This is of course because not all lending institutions can provide this loan because of the high risk.
- Not only that, the interest rates for jumbo mortgages are also higher than conventional loans. This is because lenders expect higher returns from these jumbo borrowers. Therefore, if you want to take this type of loan, make sure that the amount of your debt is much less than your assets.
FAQ about Jumbo Loan
- How are jumbo loan rates determined?
The rate is determined based on the standards of the Federal Reserve and the borrower’s own factors, namely in terms of a credit score of more than 700 and a sufficient amount of reserve money. Jumbo loans interest rates will also fluctuate in line with short-term interest rates from the Fed.
- What are jumbo mortgage points?
Jumbo mortgage points are also known as discount points. This is a fee charged to the borrower to be paid to the lender in order to obtain a lower interest rate. This means that you have to pay a fairly large down payment within a certain period of time in order to pay less interest on jumbo loans.
- How much is a jumbo mortgage that can be obtained?
The number of jumbo loans that you can get, of course, depends on your credit score, income, assets, and property value. This type of loan is more suitable for people with high incomes.