When You Need a Jumbo Loan

by Alan Blackie 07/26/2020

Photo by Bruce Clark from Pexels

The Federal Housing Finance Agency (FHFA) limits how much you can borrow to buy a house. If you want to take out a mortgage that is above the limits, you have to apply for a jumbo mortgage. As of mid-2019, the limits were increased to $484,350 for most of the country. Some places – states and counties – have a higher limit of $726,525. Those areas are places that have higher home values, and include Guam, Alaska, the U.S. Virgin Islands and Hawaii, among other places. Loans under those values are conforming loans, and those over are non-conforming loans.

Credit Risk

Because jumbo loans are riskier, the applicant has to jump through more hoops to get one. The major hoop is that your credit score must be higher. Most jumbo lenders require you to have a credit score of at least 680, though some require you to have a credit score of at least 720 or higher. Jumbo loans are riskier because they are not backed by Freddie Mac or Fannie Mae, and because of the obvious — the lender is lending more money.

Additionally, your debt-to-income (DTI) must be lower than 43 percent, though some lenders will refuse to give you a jumbo loan unless your DTI is lower than 36 percent. Your debt-to-income ratio is the difference between your income and the amount you pay out in liabilities, including the mortgage.

Another common requirement of a jumbo mortgage is that you have to have cash on hand to cover a certain number of payments. Some lenders could require as much as six months of reserves.

Mortgage Rates

Often, the APR on jumbo loans is higher than it is on conforming loans because of the extra risk involved in that type of loan. However, interest rates dropped in the second quarter of 2019 for jumbo loans, so you could get this type of mortgage for as low as 3.8 percent. If you are applying for a jumbo loan, be sure you check the requirements and rates of several lenders.

Jumbo Mortgage Down Payments

Previously, a lender might have required you to come up with at least 30 percent down payment for a jumbo loan. However, with the better economy, some jumbo lenders have loosened their restrictions, including lowering the amount of a down payment to as low as 10 percent. Again, if you prefer a lower down payment, shop around. You may also be forced to have private mortgage insurance if your down payment is less than 20 percent.

Tax Breaks

The cap on the mortgage interest deduction is $750,000, so you won’t get a large tax break on a jumbo loan. Make sure you consider that, among the other requirements as set forth above, before you fall in love with a house that requires a jumbo loan.

About the Author
Author

Alan Blackie

Personal My personal credo is simple: Treat others as you would wish to be treated. I also carry this into my business life. As a result you can expect me to work with you to maximize the value of the time we spend together and the price finally agreed in our transaction. I will talk with you not to you. I will answer your call or communication in a prompt and courteous fashion. I will exercise unerring commitment to service while, showing empathy with your needs and goals. A Norwalk resident since 2002. Education Educated in England to HNC in Electro-Mechanical Engineering Therfield County Secondary School: Surrey to GCSE, A Level Carshalton College Surrey: Electro-Mechanical Engineering to HNC. Dale Carnegie London UK: Effective Communications & Human Relations/Skills for Success. Professional Association Member of New Canaan Multiple Listing Service. Member of Greater Fairfield County Multiple Listing Service. Mid-Fairfield County Board of Realtors - Member. Connecticut Association of Realtors - Member. National Association of Realtors - Member. Community Involvement Person to Person Open Door Shelter Norwalk Land Trust - If you are actively looking to buy homes or sell property in the Coastal Fairfield County area, feel free to call me at (203) 219-9510, 8.00am through 8.00pm EST alternatively email or text anytime. Residential Sales, Residential Listings, Exceptional Properties, First Time Home Buyers, Corporate Relocations, New Construction, Investors. Areas Covered: Coastal Fairfield County including but not limited to - Norwalk, Rowayton, Stamford, Trumbull, Fairfield, Westport, Wilton, Weston Thanks for stopping by. Feel free to reach out with any real estate related questions or requirements that you may have. Licensed in CT #RES 0765024