10/24/2022
When we think of Jumbo mortgages or Jumbo loans, we may imagine something so big that we may not be able to handle. There is some truth to that statement and that is what we will try to find out more about in this article.
What Jumbo Loans Are All About
A jumbo loan represents a mortgage that exceeds the FHFA (Federal Housing Finance Agency) conforming loan limit. This means that the amount granted by the bank or lender is not backed by the government.
In most of the United States, the minimum for this transaction is $647,200 in 2022, and you are not going to get it through Freddie Mac or Fannie Mae.
Also known as conventional non-conforming mortgages, they involve greater risks for those offering them since they are not insured by federal entities.
As you might expect, they are designed to buy luxury properties in very attractive real estate markets and where competition for land increases with prosperity levels.
- Interest: Fixed-rate or adjustable-rate
- Max term: 30 años
- Interest: Fixed-rate or adjustable-rate
- Max term: 30 años
Depending on the county, the limit could be set at 150% more. This applies to places like Alaska, Hawaii, the U.S. Virgin Islands, Guam and other mainland locations where home values are above this average.
These mortgages usually have a fixed or variable rate and the terms vary from one financial institution to another.
Jumbo mortgage rates
In the past, jumbo mortgages had higher interest rates than conventional mortgages for a variety of reasons. However, this difference has been reduced over time, becoming comparable or even lower depending on the down payment percentage.
That is why it is always advisable to compare mortgages to obtain the best conditions.
We feel it is important to emphasize that, although these financial products cannot be backed by government-sponsored companies, there are other institutions that can handle them without problems.
Since these securities imply a higher risk of default, they are traded on the basis of a higher yield premium than traditional options.
What do you need to get a jumbo mortgage loan?
The requirements for jumbo loans are stricter than for other conventional mortgages.
If you're thinking of buying a property worth at least half a million dollars and you don't have the money in the bank, you need backing. This means you should have a well above average credit score and a fairly convincing income.
With that in mind, we'll break it down like this:
Reserve funds
It's clear that the more money you have in your accounts, the more likely you are to get attention. Since this is a sum of money that many won't see in their lifetime, lenders need to make sure you can pay.
That's why they need to verify that you have a cash reserve sufficient for 6 months or a year's worth of monthly payments.
Debt-to-income ratio
This is important because if your credit score is below 700, you have to compensate with less debt. To avoid being over-indebted, your DTI should not exceed 45%.
This consideration can be more flexible as long as you have assets or cash to back up your application.
Documentation
Unlike a conventional mortgage, a jumbo mortgage has more documentation requirements regarding your assets.
Among other things, you'll need current and complete tax returns, bank statements, 1099 forms, W2 forms and any other investment or account information.
Income and credit score
People with incomes of $250,000 to $500,000 a year are estimated to be good candidates for these loans.
This should be combined with a credit score above 740, which may be lower if your level of indebtedness supports this condition.
Percentage of down payment.
In the past, lenders that provided jumbo loans used to ask you for at least 30% down. This has changed and now you can expect to pay from 10 to 20%.
Since this financing is so high, paying less than 20% might even prevent you from having to take out the famous Private Mortgage Insurance.
Final Remarks
Having the purchasing power to take out a jumbo loan is good news for anyone. Still, there are important considerations behind this decision, such as taxes, closing costs, down payment and paperwork requirements.
Ultimately, it will always be better for you and the bank to handle a single large debt than to process 2 or more mortgages at the same time.
Español: Qué son los Jumbo loans (hipotecas de grandes montos)