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Last updated on November 29th, 2021 at 01:25 pm
A jumbo loan, also known as a jumbo mortgage, is a type of financing that exceeds the limits set by the Federal Housing Finance Agency (FHFA).
Unlike conventional mortgages, a jumbo loan is not eligible to be purchased, guaranteed, by Fannie Mae or Freddie Mac.
Designed to finance luxury properties and homes in highly competitive local real estate markets, jumbo mortgages come with unique requirements of underwriting and tax implications.
Pricey mansions and ordinary homes in neighborhoods with above-average costs of living often require homebuyers to take out “nonconforming loans”: jumbo mortgages above the limits.
Now with the coronavirus pandemic getting a jumbo loan from a lender is trickier. Homeowners must undergo more rigorous credit requirements and a very low debt-to-income ratio than those applying for a conventional loan.
Lenders use a process known as underwriting to determine the risk of issuing you a mortgage.
Many lenders have raised their jumbo rates amid the coronavirus economy, to ward off potential borrowers.
The mortgage bankers say rates on 30-year fixed-rate jumbo loans were averaging 3.33% in late September, compared to just 3.05% for conforming 30-year loans.
The Mortgage Bankers Association says, amid the high unemployment and business failures of the COVID-19 crisis, lenders have been more skittish about offering jumbo loans.
The availability of the plus-size mortgages has dropped 59% compared to the pre-pandemic months early in 2020.
The value of a jumbo mortgage varies from state to state and even county. The FHFA sets the conforming loan limit size for different areas on an annual basis, though it changes infrequently.
As of 2020, the limit was set at $510,400 for most of the country. That was increased from $484,350 in 2019.
For counties that have higher home values, such as San Francisco, New York City, and Washington, D.C. it is $765,600, the baseline limit for a jumbo loan is $765,600 for one-unit properties throughout Alaska, Hawaii, Guam, and the U.S. Virgin Islands.
The average APR for a jumbo mortgage is often par with conventional mortgages, while down payments are roughly 10% to 15% of the total purchase price.
If you need a jumbo loan, it’s vital to comparison shop to avoid the higher rates. Shop from at least 5 lenders and review them, to find the lowest rate in your area.
Compare rates from multiple insurers when you buy homeowners insurance for your high-dollar home to get the coverage you need at the best possible price.
How much you can ultimately borrow depends, of course, on your assets, your credit score, and the value of the property you’re interested in buying.
These mortgages are considered most appropriate for a segment of high-income earners who make between $250,000 and $500,000 a year.
Compare terms to see if taking out a smaller conforming loan, plus a second loan, instead of one big jumbo, might prove better for your finances in the long run.
