When it comes to choosing a mortgage loan for your home, there are a lot of different options to consider. A jumbo loan might just be the loan you’re looking for! Check out this guide to learn more about jumbo loans and help you decide if it’s the right mortgage for you.
What is a Jumbo Loan?
A jumbo loan is a type of mortgage loan that can utilized for high-value homes, often considered luxury housing, or for homes in a high-priced market. This type of loan can be utilized when the loan amount exceeds that of the conventional loan limit, allowing you to borrow a higher loan amount and making it a nonconforming loan.
Because a jumbo loan has a greater risk, you’ll find that the requirements are stricter than some other loans. In order to qualify for a jumbo loan, the borrower will need to meet the following requirements:
Income and Verification: It is crucial for the borrower to be able to verify their income and show that they have savings so they can take on the debt.
Good Credit Score: Borrowers also need to have a great credit score, typically over 700.
Low Debt-to-Income Ratio: Having a low debt-to-income ratio is also important, with most lenders preferring this ratio to be under 43% at most.
Down Payment: The requirements for down payment amount may vary depending on the situation and lender. Keep in mind that anything below 20% will most likely require private mortgage insurance if approved.
Conforming vs. Nonconforming
It’s important to look at how a jumbo loan compares to conforming loans, like a conventional loan. Traditional conforming loans fall below the loan limit set by the Federal Housing Finance Agency (FHFA). This loan limit will fluctuate based on geographic location. These loans can be purchased by Fannie Mae and Freddie Mac, businesses utilized by the government, thus making them a less risky loan for lenders.
In contrast, jumbo loans are nonconforming and aren’t insured by the government, making them a bigger risk for lenders. They are typically kept in house by the lender rather than sold to another financial institution. This means that there can be more variation in requirements and loan limits between lenders when it comes to jumbo loans, and it may be a little more difficult to qualify for.
When to Choose a Jumbo Loan
Choosing the right mortgage loan for your home is another important step in your home buying journey. A key factor that people consider when choosing a mortgage loan is the loan amount, especially if the home they are interested in exceeds the conforming loan amount. If you’re looking to finance a luxury home or a home in a higher priced area, then a jumbo loan may be the best option.
A jumbo loan can be a great way to make your dream home a reality! If you find yourself looking at a home that would fall under the conforming loan limit, it’s a good idea to compare loan terms and interest rates to find the best option for your situation. If the loan is above that limit, be sure to explore the possibility of a jumbo loan.
Learn more about Preparing for a Home Loan