A jumbo loan is a type of mortgage that exceeds the limits set by the Federal Housing Finance Agency (FHFA). This means a jumbo loan cannot be financed under Fannie Mae or Freddie Mac. Instead, a jumbo loan is designed to finance luxury homes in highly competitive areas and come with their own set of underwriting and tax requirements rules.
Depending on the state you live in, the value of the jumbo loan varies. On an annual basis, the FHFA sets the loan limits; in 2019 the limit was, on average, $484,350 across the United States.
In other areas of the United States, this amount rises to $726,525. This amount includes U.S. territories (Guam and the U.S. Virgin Islands), as well as the states of Alaska and Hawaii.
Jumbo Lender Goals
Jumbo loans are given out by traditional banks and private investors who design their own loan approval criteria. This means each loan is different. You can shop around for a lender by reviewing their approval criteria and their pricing as this can vary widely.
Do I Qualify for a Jumbo Loan?
Overall, jumbo loans are more difficult to qualify for than conventional loans. This is because the loan amounts are high, and the lenders are incredibly selective when giving out this type of loan. Some of the most common qualifications for a jumbo loan include:
A Down Payment: You can expect to put down 20 percent or more for a jumbo loan. There are some institutions that will work with you and allow a 10 percent down payment. Keep in mind that as the amount of the loan increases so does the down payment.
Credit Score: You’ll need a FICO score over 700 to qualify for this loan.
Debt to Income: Your debt to income ratio is also considered. The lower it is, the better. The target number lenders look for is 43 percent.
Assets and Income: Lenders will want to see that you have assets, as well as sufficient and consistent income available to cover the loan payments. If you’re self-employed, you’ll need to submit all of your tax documents and any other information to prove your income.
What Do a Jumbo Loans Cost?
Jumbo loans are designed to help people who are financially secure purchase an expensive home. Some charges you can expect to pay on a jumbo loan include:
Interest Charges: Traditionally, Jumbo loans have typically had a higher interest rates as the lender is taking on more risk. However, since the recovery of the housing market, lenders are finding these loans can be more low risk. Consequently, you may be able to find a lender with interest charges that are lower than a conventional loan. Like a traditional loan, jumbo loans have fixed or variable rates.
Mortgage Insurance: The purpose of mortgage insurance is to protect the lender if the borrower should default on the loan. However, it is up to the lender whether you need to pay mortgage insurance.
Closing Costs: Just like traditional loans, jumbo loans come with closing costs. There are also appraisal fees to consider, which may be higher because of the size and cost of the property. In some cases, you may even need two appraisals to acquire a jumbo loan.
