What Is a Jumbo Mortgage?
Mortgage customers looking for more cash on a home loan should consider a jumbo loan.
A jumbo loan, also known as a non-compliant loan, is a mortgage loan of $ 484,350 or more for a single housing unit in 2019.
The reason jumbo loans are known as non-compliant loans is because the larger loan amount exceeds the limits of most conventional mortgage loans, particularly the guidelines of Fannie Mae and Freddie Mac Buying Conventional Mortgage Loans to Help the U.S. Mortgage Market stabilize. Fannie
(FNMA) and Freddie
(FMCC) Conventional mortgage loan limit set at $ 484,350 for 2019, up from $ 53,100 in 2018.)
By and large, however, homebuyers tend to opt for jumbo loans when planning a mortgage in excess of $ 484,350 depending on the city or state they live in (the number may vary depending on the market you are investing in) If you are buying a home in an expensive area of the United States such as Hawaii, San Francisco, or New York City, the jumbo loan size should increase exponentially – often over $ 700,000.
Jumbo borrowers need to do their homework and thoroughly check each property to make sure it is eligible for a jumbo loan. It’s not as easy as it sounds – not when lenders aren’t allowed to agree to a jumbo loan for a second home or a foreclosed or sold short home.
It is up to the buyer to know what type of property they are buying and whether it meets the criteria for a jumbo loan.
The good news? Your loan provider can help you identify your mortgage loan and determine whether or not it is a jumbo mortgage loan.
Jumbo Loans vs. Conventional Loans
Jumbo loans have a lot in common with traditional mortgages.
For example, you need a good credit rating to qualify for both a conventional mortgage loan and a jumbo mortgage loan.
Some lenders may require that you have a higher credit rating for a jumbo loan than for a traditional mortgage loan. By and large, homebuyers seeking jumbo credit can expect their creditworthiness to be checked by a lender (A FICO
(I AM) – Report received from Fair Isaac Corporation a score of 680 or higher should do the job), must pay a reasonable down payment for the property, and have a mortgage lender assess the debt to income ratio of the household.
Jumbo loans are considered “non-compliant” mortgage loans (compared to “compliant” mortgage loans) with traditional mortgages and are therefore typically more difficult to obtain.
Where jumbo loans are also different from traditional loans, it is after the mortgage loan is taken out. There, homebuyers have to set aside jumbo loan reserves (also known as post-closing liquidity), usually in the amount of up to 12 months of home payments (the higher the borrower’s creditworthiness and the higher the down payment, the lower the cash reserve, the the borrower has to put aside.)
In some cases, the final reserve may be waived if the home loan borrower can demonstrate a low household debt-to-income ratio or if your home down payment is abnormally high.
Advantages and disadvantages of a jumbo mortgage
Like any mortgage product, jumbo loans have their pros and cons – here’s a closer look:
Benefits of a Jumbo Mortgage
More money. The biggest benefit of a jumbo loan is the ability to get more loan money to buy high quality property.
Low down payments. Unlike many traditional mortgages, jumbo mortgage loans come with low down payments. While traditional mortgage loans typically require a 20% down payment, jumbo loan down payments can be as low as 5%, with 10% being more common.
Jumbos come with competitive rates. The interest rates on jumbo loans have fallen in recent years and are even slightly lower in 2019 than a borrower would find on a conventional mortgage loan.
Lots of flexibility. Jumbo loans come in different varieties, giving borrowers more leeway in choosing the most suitable mortgage for them. Borrowers can get a 30-year jumbo fixed rate loan or opt for a variable rate mortgage instead. Borrowers love flexibility and that’s exactly what they get with jumbo loans.
Disadvantages of a Jumbo Mortgage
You need a solid credit rating. If your FICO credit score is 660 or lower, you will struggle to get a jumbo mortgage loan. However, if you can make a larger down payment, you may still be able to get a jumbo mortgage.
You have to prove a high annual income. Lenders tend to be selective about jumbo loans and want you to demonstrate that you have solid annual income and significant personal assets.
You need to put cash on the reserve. When you take out your jumbo mortgage loan, you may be asked to set aside up to 12 months of mortgage payments in order to receive the loan. Lenders require a cash reserve in case the borrower gets into financial trouble.
Get a jumbo mortgage loan
In many ways, getting a jumbo mortgage is more difficult than getting a traditional mortgage loan, largely because the loan amount is higher and the lending standards are stricter.
Still, getting a jumbo loan is very doable if you are both disciplined and creative. Start with these tips.
1. Check with multiple lenders and get multiple interest rate quotes.
Since jumbo loans are larger than traditional mortgage loans, any money you can save on interest rates is a big deal.
For example, with an interest rate differential of only half a point on a jumbo loan of $ 700,000, 4.375% versus 4.875%, you can save about $ 75,000 over a 30 year loan.
2. Check your credit history and improve it where you can.
You need a solid credit score to get a jumbo loan – preferably a FICO score of 680 and above (the higher the better). Before applying for a jumbo loan, check your credit history for free at annualcreditreport.com. Scan and check for errors and report any discrepancies to the main credit reporting agency that listed the information – either Experian
(EXPGY) , Equifax
(EFX) – Get the report from Equifax Inc. or Transunion
(TRU) – Get the TransUnion report .
3. Get your personal financial documents in order.
Typically, lenders want to see your most recent tax returns, proof of employment, and possibly 90 days or so bank statements. Mortgage lenders will also prioritize your household’s debt-to-income ratio to ensure that you are not financially overwhelmed after taking out a jumbo loan.
In general, the lower your DTI, the better. Many lenders will limit a borrower’s debt to income ratio to 45%.
4. Be ready to show evidence of a cash reserve.
Your chances of getting approved for a jumbo mortgage loan increase significantly when you can demonstrate that you have kept the mortgage payments in cash for up to 12 months. A simple bank savings account should do the job – just bring proof of account when applying for a jumbo loan.
5. Have your target home valued.
Lenders may also require you to have a professional appraiser appraise the home you are buying to determine the current value of a property (by someone other than the seller).
Where can I get a jumbo loan?
Mortgage loan borrowers can find jumbo loans from most major banks and mortgage lenders such as Bank of America
(MER-K) – Get Bank of America Corp 6.45% Notes 2018-12-15-66 Income Capital Obligations Report , Citizens Bank
(CFG) – Get the report from Citizens Financial Group, Inc. , US bank
(USB) – Get the US Bankcorp report Accelerate, Loans and Loan Tree
(TREE) – Get the report from LendingTree, Inc. .
On the whole, you probably won’t find jumbo loans with smaller banks and credit unions unless you live in an area where home prices are high and jumbo loans are in high demand. Also, larger financial institutions are likely to offer better interest rates just to keep your business going.
A good place to start your jumbo loan search is with your own bank – they know you and are more likely to approve a loan than an unrelated bank or lender.
If your financial institution doesn’t offer jumbo loans, they are likely to point you out to one that does.