A jumbo loan is a type of mortgage designed to finance luxury homes or those in highly competitive real estate markets. Limits for these loans vary by location but it typically hovers around $484,350 for most of the country. However, you can’t get these loans through government-sponsored entities like Fannie Mae and Freddie Mac. But don’t worry. As you go about securing a jumbo loan, also known as a jumbo mortgage, consider connecting with a financial advisor for hands-on guidance throughout the process.
What You Should Know About Jumbo Loans
A jumbo loans finance single-family homes that exceed maximum loan limits set by the Federal Finance Housing Agency (FHFA). These are also the maximum mortgage amounts that can be purchased or backed by Fannie Mae and Freddie Mac. These are among the biggest government-sponsored players in the industry, and they’re behind most conventional mortgages.
Jumbo mortgage maximums vary by state and county. Plus, the FHFA updates these limits every year. For 2019, the organization set the jumbo loan limit for most of the country at $484,350. It’s different outside the continental United States, however.
For Alaska, Guam, Hawaii and the U.S. Virgin Islands, the limit rose to $726,525. But keep in mind that these maximums can rise even higher in particularly competitive real estate markets.
As long as you qualify, you can take out a jumbo loan and use it to cover your primary residence or the mortgage on an investment property, vacation home or second family home.
How to Qualify for a Jumbo Loan
Even if you’re fortunate enough to have a million dollars sitting in your bank account, qualifying for a jumbo loan probably won’t be a walk in the park. As with a standard mortgage loan, there will be some hoops that you will have to jump through.
Before starting the application process, it’s a good idea to have your documents in order and ready to go. These include your most recent pay stubs, W-2 forms, tax returns and bank statements. And don’t forget your mortgage preapproval checklist. It’s also critical that you have at least six months of cash ready to put toward your jumbo loan, particularly if you’re an entrepreneur or you work for yourself.
When applying for a traditional mortgage loan, lenders usually prefer for your debt-to-income ratio (the money you use to pay off debts each month divided by your monthly income) to be below about 36%. If you’re applying for a jumbo loan, however, you generally need to have a lower debt-to-income ratio.
You’d also need a higher credit score to obtain a jumbo mortgage. Most lenders would prefer you to have a credit score that hovers around 700.
As always, it doesn’t hurt to shop around and compare mortgage rates for jumbo loans. If you’re looking to get one, your best bet is to check out one of the big banks or find investors who are part of the secondary mortgage market. There are a variety of jumbo loans to choose from, including ones with adjustable and fixed interest rates.
Lending Restrictions on Jumbo Loans
Back in 2008 when the country was in the midst of a recession, few people could find a lender to offer them a jumbo loan. But restrictions are loosening up in the post-recession era.
In fact, borrowers with jumbo mortgages have recently been able to acquire loans with interest rates that are slightly lower than those that come with regular mortgage loans. This was not the case in the past. That might not seem very fair, but jumbo loans usually seem less risky to lenders because the people who apply for them are considered more likely to make their mortgage payments on time each month.
Most first-time homebuyers will probably want to make a down payment of at least 20% of their home’s total value, especially if they want to avoid paying extra money for private mortgage insurance (PMI). The purpose of this insurance is to protect lenders in the event that you default on your mortgage loan. Jumbo loan applicants usually get to skip PMI altogether, even if their down payment is below the 20% standard.
A jumbo loan might be the right kind of mortgage for you if you plan to buy a big piece of property and you don’t want to bother dealing with more than one piggyback loan. Just make sure you can afford to keep up with the payments. No home, no matter how beautiful, is worth jeopardizing your financial security for.
Home Buying Tips
- If you’re not sure if you should seek a jumbo loan, use our how much house can I afford calculator to get a better picture of what you can afford and what you should aim for.
- The home buying process can be extremely complex, but we can help you find professional guidance. Use our SmartAsset financial advisor matching tool. All you have to do is answer a few simple questions about your goals. The tool will track down local advisors for you. From there, you can review their profiles and evaluate their qualifications before deciding which one to work with.
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