Jumbo Mortgages

Jumbo loans: Every thing you must know


A big purchase can require a big mortgage. (iStock)

If you’re buying a big new home or are just trying to get the best bid in today’s seller’s market, you may need to get a jumbo loan. As the name suggests, a jumbo loan is a type of mortgage that is larger than a traditional home loan. It’s one that exceeds the funding criteria of Fannie Mae and Freddie Mac, the government-sponsored entities that buy, bundle, and sell mortgages from lenders to investors.

You can get a jumbo mortgage to buy a primary residence, vacation rental, or investment property. However, before you sign on the dashed line, it is important to understand how they work.

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What is a jumbo loan and how does it differ from a classic mortgage?

In most counties of the United States, a jumbo loan – also called a non-compliant loan – is $ 548,250 or more for 2021. In high-cost areas of the country where life is more expensive, the limits are higher. For example, several counties in California, New York, and Hawaii have a limit of $ 822,375 for 2021. Any loan that is below the limit is called a compliant loan.

The main difference between a jumbo or non-compliant mortgage and a compliant mortgage is size. Otherwise, both types of credit offer options with fixed or variable interest rates. The payment schedule is usually the same, and borrowers are offered different terms.

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Typical jumbo mortgage rates

Unlike traditional or FHA mortgages, jumbo loans are not guaranteed by Fannie Mae and Freddie Mac and are considered riskier by lenders. As a result, they often come at higher rates. You may have to look for a jumbo mortgage loan more than a traditional, compliant mortgage.

According to Zillow, the average annual rate for a 30-year jumbo loan was 3.28%, while a corresponding 30-year fixed rate was 3.01%. To find the best jumbo mortgage rate, visit Credible to compare current interest rates from multiple mortgage lenders so you can make an informed decision about your home loan.


What You Need to Qualify for a Jumbo Loan

Because it is considered riskier and the loans are not backed by government agencies, it can be harder to qualify for a jumbo mortgage loan, and it is virtually impossible if you have poor credit. Banks and credit unions often require borrowers to have credit ratings greater than 700.

Lenders will also carefully examine your debt-to-income ratio to ensure that you can afford the mortgage payment. Some want enough cash in the bank to cover payments for six to twelve months. Jumbo mortgage loans may require more documentation than traditional mortgages, such as tax returns, bank statements, and investment account information.

Advantages and disadvantages of a jumbo loan

Like any mortgage product, jumbo loans have advantages and disadvantages. One of the perks is the ability to borrow more than the limits set by Fannie Mae and Freddie Mac, which can make buying an expensive home possible.

Another benefit is that you have more cash to spend by borrowing a larger amount while the interest rates are still low. As long as you can make the monthly payment, you can keep your cash reserves for other investments.

And jumbo loans are flexible, with fixed and variable interest rates and different terms. This can help you create a mortgage payment that fits your budget. Check out Credible’s online mortgage calculator to see potential monthly payments.


However, the downsides are that you need a strong credit rating to qualify. If your FICO number is less than 680 or 700, you may not be approved. You must also have a high annual income, significant financial assets and a low DTI.

Jumbo loans have higher interest rates than conforming loans. And since lenders often want to see proof of future payments, you’ll also need to show strong cash reserves. Lenders often require a larger down payment than traditional mortgages.

While low down payments are pretty common on compliant loans, jumbo loans are more likely to require a down payment of at least 20%, although some lenders may go as high as 10%.

Before entering into debt – especially those of this magnitude – you should familiarize yourself with your options and terms. While real estate can be a good investment, you want to surround yourself with professionals to help you make smart decisions. If you have any questions, you can visit Credible to connect with expert loan officers who can provide answers on large and small mortgages.


Do you have a finance-related question but don’t know who to contact? Email the Credible Money Expert at moneyexpert@credible.com and your question could be answered by Credible in our Money Expert column.

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