A jumbo loan, also known as a jumbo mortgage, is a type of financing designed to finance luxury homes and other properties in highly competitive real estate markets. It exceeds the conforming loan limit set by the Federal Housing Finance Agency (FHFA).
Unlike conventional mortgages, this type of loan cannot be purchased, guaranteed, or securitized by the government-backed entities Fannie Mae or Freddie Mac. It also comes with unique tax implications and underwriting requirements. To determine whether this option is right for you, use this article as your guide.
How Can I Tell If I Need a Jumbo Loan?
A jumbo loan is a financing option for those who need a greater balance than the recommended lending limits. It can be used for primary homes, vacation homes, or investment properties. It is also available as adjustable-rate mortgages and fixed-rate loans. You will probably need a jumbo loan if you want to buy a house that costs almost half a million dollars or more and you have insufficient funds in your bank account.
You may also have to seek this type of loan if you are a home buyer who doesn’t meet the Fannie and Freddie loan limit restrictions. When this happens, you are expected to look for a lender who will offer a second mortgage so you can get conforming loans or increase the amount of your down payment.
Why Should I Consider a Jumbo Loan?
If you are a borrower considering investing in a home priced above the current conforming loan limit, getting a jumbo loan may be your best option. It lets you access more financing than you could receive with a conventional mortgage.
Home buyers usually just want one mortgage loan. With a jumbo loan, you might avoid breaking the full loan amount required into multiple mortgages. In addition, this loan offers features that may be unavailable on a conforming loan, such as adjustable-rate and interest-only repayment terms.
What Are the Qualifications for a Jumbo Loan?
The requirements for a jumbo loan depend on the lender and applicant. However, here are some things you can expect:
- A high credit score – Jumbo loan presents a greater risk for lenders. Because of this, jumbo loan applications require you to have a minimum credit score of 680. Some mortgage bankers are also more restrictive.
- A low debt-to-income ratio – You need a low DTI. Compute it by dividing your gross monthly income against your monthly debt payments. Expect your lender to require a DTI as low as 36 percent.
- A large down payment – Conventional loan lenders typically demand as little as three percent. However, issuers may ask you for a down payment of 15-30 percent for jumbo loans. When you have a down payment of at least 20 percent, you no longer have to pay private mortgage insurance.
Jumbo Loan with Mortgage City
A jumbo loan allows you to attain a luxury home you’ve always dreamed of or acquire an investment property in a highly competitive real estate market. Just prepare to meet stricter qualification guidelines and remember the important information in this guide. You can also check our jumbo refinance rates to help you make a better-informed decision. If you’re trying to secure a jumbo loan in Michigan, feel free to reach out to Mortgage City. We help aspiring property owners in Detroit fulfill their financing needs and buy their desired assets. Contact us at (248) 930-8709 to learn more about how we can help!
