Understanding Jumbo Home Loans and Their Role in the Housing Market
Jumbo Home Loans, often referred to as non-conforming loans, are those that exceed conventional loan limits. For the majority of states, homes with a sale price in excess of $453,100 require a jumbo mortgage. There are areas of the country where conforming loan limits go as high as $729,750, but these tend to be in high-cost areas. Fannie Mae and Freddie Mac, two government-sponsored entities, establish these limits, as they typically buy residential mortgages from lenders to allow for more liquidity in these financial institutions. Individuals with a high credit score, large down payment, and low debt-to-income ratio often find jumbo loans in Texas to be the best option.
In the past, jumbo mortgage loans often came with high interest rates. The lender was taking on more risk due to the amount of the loan and the difficulty they may encounter if the property goes into foreclosure, as luxury properties are harder to sell. This trend in interest rates appears to be changing, however, due in part to Fannie Mae and Freddie Mac raising fees at their institutions. Recently, jumbo loans have actually seen interest rates drop below those of conforming loans, but a home buyer must shop around to ensure they get the best deal on their jumbo mortgage, as with any home mortgage loan. One must also take into account the fact that interest on the jumbo loan is deductible up to $1 million dollars and that both fixed and adjustable rate loans are offered.
Qualifying For A Jumbo Loan
Individuals looking into jumbo loans will find that they must meet certain qualifications and requirements. The borrower must have a FICO score of 700 or higher with most lenders, and a debt-to-income ratio of 45 percent or lower. In addition, jumbo loan borrowers must have a required reserve amount of up to 20 percent of the total value of the home loan, and the down payment is larger, as there is no private mortgage insurance offered for loans of this type. A property appraisal must be completed and must justify the purchase price of the home and the mortgage loan to be obtained. If one or more qualification isn’t met, the loan will typically not be approved.
Jumbo Loan Purchases
One may purchase a primary home using a jumbo loan or may opt to obtain a second or vacation home using this funding option. Investment options also qualify for jumbo home loans. The loan limit does vary by the type of property selected, however. If a person is interested in purchasing a one-unit property, the $453,100 loan limit remains in effect. For two-unit properties, a conforming loan may be obtained in amounts up to $580,150, and the limit increases to $871,450 for four-unit properties.
Any individual wishing to purchase a property valued at more than $453,100 may need to look into Jumbo Home Loans. This depends on the amount of the down payment being used to purchase the home and the amount to be financed. One needs to shop around when obtaining a home loan, as more and more banks tend to keep these types of loans on their books, rather than selling to an outside entity.
For more information or details about a Jumbo home loan, please contact our Home Loan Specialists at 281-949-7218.