Recently, we answered the Top Five Questions About Conventional Loans. This week, we will discuss Jumbo loans. If you are planning to purchase a home soon, read on to learn more about whether a Jumbo loan might be right for you.
While a Conventional loan is one which conforms to the guidelines set by Fannie Mae and Freddie Mac, a Jumbo loan is one which exceeds the loan limits set by these entities. These set loan limits vary by location. The majority of U.S. cities have a loan limit of $417,000 on one-unit properties, while higher cost areas tend to have a higher loan limit of $625,500. Some areas have a loan limit that is in between these two numbers, or even higher.
- Why would I apply for a Jumbo loan?
If the home you are interested in cost more than the loan limit for your area, a Jumbo loan may be right for you. Your lender will be able to help you determine how much house you can afford, and see if a Jumbo loan fits your needs.
- How much can I borrow with a Jumbo loan?
The amount you can borrow with a Jumbo loan will depend on your lender. NFM Lending lends up to $3 million on Jumbo loans.
- What are the requirements to qualify for a Jumbo loan?
Because the amount of a Jumbo loan is higher than a Conventional loan, the requirements may be stricter. A Jumbo loan may require a higher down payment, a higher credit score, higher reserves, and a lower debt-to-income ratio than a Conventional loan. Additionally, a Jumbo loan may require two appraisals, instead of one.
- Do I need private mortgage insurance (PMI) on a Jumbo loan?
Often, you will not have to pay PMI on Jumbo loans, as they usually require a higher down payment. PMI is designed for home buyers who make low down payments. However, since the down payment requirement will vary by lender, it is possible that your lender will require PMI in exchange for a lower down payment.
- What are the benefits of a Jumbo loan?
In addition to no PMI requirement, one of the main benefits that a Jumbo loan is that you will be able to afford more home than with a Conventional loan or other loan type. Additionally, a Jumbo loan will allow you some flexibility with your loan terms. You can choose a 15 or 30-year mortgage, and a fixed-rate or adjustable-rate mortgage, depending on your needs. Your lender will work with you to determine what kind of loan program is right for you.
If you are looking at homes that exceed the conforming loan limits for your area, a Jumbo loan may be the right financing option for you. If you have more questions about Jumbo loans, contact one of our licensed Mortgage Loan Originators. If you are ready to begin the home buying process, click here to get started!