Having shaken their reputation after the excesses of the McMansion buying sprees in the run-up to the housing crisis, jumbo loans in 2018 are now back and in better shape than ever. Any non-conforming loan exceeding the servicing limits set by Freddie Mac and Fannie Mae is considered a jumbo loan.
These limits are $453,100 in all states except Alaska, Hawaii, and some designated hot markets where the threshold is $679,650. You can obtain jumbo loan programs for larger mortgage amounts whether for a primary or secondary residence, or even an investment property.
Why Do Conforming Loans Need Limits?
These limits were set in place with the Housing and Economic Recovery Act (2008) so that loans enabled by Freddie Mac and Fannie Mae would remain widely available according to Andrew Leventis of the FHFA. Since loans outside these limits are not backed, they are viewed as riskier by lenders.
How Much Can You Borrow With Non-Conforming Jumbo Loans?
With jumbo loan programs for larger mortgage amounts, you can borrow as much as the lender sees fit. While it seems simple on paper, qualifying for jumbo loan programs for larger mortgage amounts can be more rigorous. Since you’ll be borrowing more, this is understandable.
Here are the main points that you need to think about if you’re looking to buy a more expensive property to live in, as a vacation room or even as an investment property.
Factors to Consider with Jumbo Loan Programs
Whatever your reason for needing a jumbo loan, standards are tight so check carefully to determine whether this type of finance is right for you.
As a rule, credit score requirements are more stringent with jumbo loans than with conforming loans. While you can pick up a standard mortgage with a credit score of 500, the minimum normally accepted for a jumbo loan 680. Many jumbo loan programs for larger mortgage amounts demand credit scores of 720.
The advantage here is that if you meet these requirements, you’ll qualify for the most competitive jumbo loan programs for larger mortgage amounts. You might even pay lower interest rates than you would find in a comparable conforming product. Other factors come into play, so credit score is not the sole qualifier for jumbo finance.
The norm for down payments is 20% although some jumbo loan programs only require 10%. If you’re looking at paying a lower down payment, you’ll need spotless credit, a rock-solid income and you’ll often be asked for proof of cash reserves or other assets. As a rule of thumb, down payments increase in line with the loan amount.
Debt-to-income ratio is a relevant factor when applying for most loans, and it’s no different with jumbo loan programs for larger mortgage amounts. 43% is often used as a guideline for acceptable DTI, but this is fluid. If you’re fortunate enough to have more substantial assets, a little more good debt might be tolerated.
The purpose of jumbo loans is not to enable the purchase of overambitious properties. At the core, jumbo loans help already financially secure investors to buy homes that happen to be more expensive than the limits set in place.
Income and Assets
If you’re looking at jumbo loan programs for more substantial mortgage amounts, you’ll need to provide proof of earnings. It’s also standard to be asked to show enough cash reserves to cover up to a year of reasonable operating expenses. If you’re self-employed, you’ll need to come up with relevant tax documentation.
Second Opinions and Appraisals
It’s not unusual for lenders to ask for a second opinion to make sure the home is being properly valued. When more money is at stake and risk is higher, these precautions are understandable. Pack plenty of patience if you’re applying for a jumbo loan program for larger mortgage amounts.
You might also pay higher closing costs since there are potentially more steps in the process with jumbo loan programs for larger mortgage amounts. Make sure you are clear about this in advance, so you don’t get any nasty surprises.
Who Offers Jumbo Loan Programs For Larger Mortgage Amounts?
As you can see, the requirements for jumbo loan programs for larger mortgage amounts are pretty demanding. Nevertheless, you’ve got plenty of choices when it comes to this type of non-conforming finance. Banks and many other private investors are all too happy to extend jumbo loans programs for larger mortgage amounts. Since these lenders have no need to sell loans on, they can create relatively flexible approval criteria within limits outlined above.
The Added Bonus With Jumbo Loan Programs
The kicker is, you might even end up paying lower interest rates since in today’s market, jumbo loans come in at up to 0.25% lower than conforming loans. Get in touch with a mortgage broker if you have any questions on jumbo loan programs for larger mortgage amounts.