4 Things you need to know
Navigating the world of mortgages isn’t easy for anyone. Whether you are a first-time home buyer, a seasoned real estate veteran, or a family looking for a vacation home, you’ll need to qualify for a mortgage. If you are looking to finance a high-value home, you may need to consider a Jumbo loan. Jumbo loans and traditional mortgages are similar, but differ in the loan amount being financed.
What is a Jumbo Loan?
A Jumbo loan is a loan extended for property that exceeds the maximum amount that Freddie Mac and Fannie Mae will back. Instead, Jumbo loans must be obtained through other lending houses that specialize in high-level lending. A loan is, generally, categorized as a Jumbo loan if the loan amount exceeds $453,100 for 2018. This loan amount changes annually. In some areas, particularly those that are identified as high cost-of-living areas, the minimum loan amount may be higher.
How Do I Know if I Need a Jumbo Loan?
When you sit down with a mortgage broker or loan officer, he or she will be able to walk you through your options and discuss whether or not you qualify for a Jumbo loan. Jumbo loan borrowers tend to be high-income earners who have a low debt-to-income ratio. A mortgage broker or loan officer will look at your credit score, your debt-to-income ratio, your current income, and your liquidity to decide if you would qualify for a Jumbo loan.
Remember, the requirements and the loan amount will differ from state-to-state. While most states use the $453,100 threshold, not every state does. Hawaii, for example, has a higher limit for Jumbo loans because of the real estate market and cost of living in the area. You will need to discuss the threshold with your broker or loan officer, as well as the amount you're interested in financing.
Are Interest Rates Higher on Jumbo Loans?
No, not anymore. If a borrower is well-qualified and has enough liquidity after closing, the interest rate should be on par with traditional mortgages. Before the housing crisis of 2008, many Jumbo loans carried an interest rate that was higher than those of conventional mortgages, as lenders were taking on a more significant risk offering such large loans, but that has since changed. The requirements to qualify for such loans have also tightened up, meaning the lenders are taking less of a risk and thus can offer interest rates that are on par with traditional mortgages.
Are there Special Qualifications for Jumbo Loans?
The traditional mortgage approval process applies to Jumbo loans as well, but you may need to show greater liquid cash than people who are asking for a conventional mortgage. Additionally, Jumbo loan borrowers may be required to show a lower debt-to-income ratio than those applying for a traditional mortgage. A lower debt-to-income ratio lets a lender know that you have enough liquid money each month to make your mortgage payment, even if the amount is higher than one would find with a traditional mortgage. Most lenders look for a debt-to-income ratio between 36% and 43% for conventional mortgage borrowers. A Jumbo loan borrower should fall below that 35% threshold.
Before you embark on your home buying journey, whether you are looking for a modest single-family home, or you are interested in purchasing a palatial estate, you’ll want to sit down and look at your finances. You will also want to discuss your loan options with a qualified broker or loan officer before you get started. The more information you have before you begin to look at homes, the easier your home buying search will be.
Equal Housing Lender