Mortgage giants Freddie Macand Fannie Maewill only purchase or guarantee loans within a set limit for every county in the US. This cap is called the conforming loan limit. So what happens when the home you’re interested in comes with an expensive price tag?
Consider a Jumbo Mortgage
For most counties in the country, the maximum conforming limit for a single-family property is $424,100 while for high-cost areas, the limit is capped at $636,150. If you wish to obtain a mortgage for a property that exceeds the loan limit for your region, that mortgage is considered a jumbo loan.
These are risky loans, given that they are not secured by Freddie Mac or Fannie Mae. So for jumbo loan lenders to ensure that their interests and their investments are protected, their jumbo mortgage products usually come with stricter qualifications and requirements. They may also come with higher interest rates, require larger down payments, and have higher costs of closing than their conforming loan counterparts.
The good thing about these mortgages, however, is that the borrower may not require the borrower to carry a private mortgage insurance.
So who are good candidates for a jumbo loan?
If you have good credit score, low debt-to-income ratio, have a stable source of large incomes but have not saved enough money to pay for the house in cash or to pay for a larger down payment, a jumbo mortgage can be a great way to acquire the home you want, especially properties in the high-end market.
The nature of jumbo mortgages
Just like conforming loans, a jumbo mortgage can come with a fixed-rate or adjustable-rate option, and can be used for diverse properties inclusive of investment properties, vacation properties, as well as for primary and secondary mortgages, among others.
Even though the market has shown signs of loosening guidelines, it’s still rough in choosing people to gain access to credit, much more with a risky loan such as a jumbo mortgage. However, qualifying for one can be a breeze if you adequately prepare. Check your score beforehand, make sure your DTI ratio is manageable – typically less than 43 percent, and have enough liquid reserves in your account to cover for at least 2 years worth of mortgage payments. This not only secures the lender, but also gives you peace of mind that you have you are in the right position to take responsibility for your investment.