With current real estate markets experiencing low interest rates, increased demand and multiple offers, buyers are seeking additional options, such as jumbo loans.
Jumbo loans can help borrowers purchase properties exceeding the 2021 Federal Housing Finance Agency (FHFA) maximum conforming loan limits, provided they meet specified income requirements, qualifications, credit ratings, and debt-to-income ratios.
Depending on your location, a true jumbo loan can range anywhere from $548,250, to as much as $822,375 for a single-family home.
Customarily used for luxury properties, jumbo loans, have become more common to meet rising home prices and higher cost-of-living expenses in certain U.S. regions. Buyers looking in moderately priced neighborhoods could still require a jumbo loan in competitive areas.
Learn more about jumbo loans, such as current rates and limits, qualifications, requirements, uses, and more.
Market conditions and other factors have also loosened jumbo loan requirements, some of which extended to previously unpredictable and fluctuating mortgage rates.
Jumbo loans could also be exempt from private mortgage insurance if the borrower can pay at least 20 percent of the purchase price at closing.
These loans bypass multiple mortgage purchases to finance a single-family home. Additional benefits include adjustable rate and interest-only loans that aren’t typically available through a conventional mortgage.
If you’re not sure of these aforementioned items, it’s best to contact an experienced mortgage lender.
Rates & Limits
Jumbo loan limits and rates vary due to several contributing factors, such as lender requirements, borrower income, down payment amount, sale price, and location.
With interest rates holding at less than 3 percent, jumbo loans can be slightly higher than conventional mortgages due to increased financial risks in some cases. Depending on the borrower’s debt-to-income ratio, credit rating, and down payment, a jumbo loan could carry an interest rate similar to a conventional mortgage.
It’s best to conduct your own research on these variables and consult a mortgage lender specializing in jumbo loan products.
Jumbo vs. Conventional
When comparing jumbo and conventional loans, the former is non-conforming and ineligible for securitization by Fannie Mae, Freddie Mac, and other government-backed entities.
Also known as a conforming loan, a conventional mortgage cannot exceed pre-set FHFA limits, regardless of the property price, size, location, or intended use. These also require good credit, cash reserves, and a 20 percent minimum down payment.
Qualifications & Requirements
As aforementioned, jumbo loans have specified requirements, some of which are more stringent than others.
Contour Mortgage recommends the following guidelines:
- Balanced Debt-to-Income Ratio (DTI): Calculated by how much you owe on monthly bills to gross monthly income, your DTI should be less than 43 percent total, with no more than 28 percent for mortgage payments.
- Additional Savings: It’s recommended to have at least six to 12 months of monthly mortgage payments in your queue to avoid payment lapses and other negative circumstances, such as foreclosure.
- Income Stability: You’ll need to ensure proof of funds, such as recent pay stubs, bank statements, W-2 forms, and other supporting financial documents.
- Higher-Than-Average Down Payments: Most jumbo loans require 20 percent or more at closing. While there might be some flexibility, a stable income, good credit, and savings are recommended for added balance.
Jumbo loans are suited for single-family homes, residential land development, and multiple-unit buildings.
Secondary & Vacation Homes
This loan can be used to purchase secondary or vacation homes for personal or investment purposes.
With jumbo loans exceeding pre-set FHFA limits for single-family homes, this threshold is even higher for two- to four-unit dwellings.
Pre-Approval Questions & Answers
When applying for a jumbo loan, it's best to contact a reputable mortgage lender for more information on current rates, limits, requirements, and qualifications.
Contact Contour Mortgage for a free consultation and to find out if a jumbo loan is right for you.