What is a Jumbo Loan?
By definition a jumbo loan is a conventional mortgage with a loan amount that is higher than $417,000 in most areas of the United States, exceeding conforming loan limits imposed by Fannie Mae and Freddie Mac. Fannie Mae and Freddie Mac, the large financial agencies that purchase the bulk of US residential mortgages from banks and other lenders, allow for institutions to free up money to lend more mortgages to those looking to purchase homes. Jumbo loans happen when Fannie Mae and Freddie Mac do not cover the full amount of the loan, which normally occurs when homebuyers are looking to buy larger, more luxurious homes, which come with a higher price tag. Since these normally higher interest rates have stayed relatively low, the main difference between a Jumbo Loan and a Conventional Loan is just the higher monetary amount and monthly payments that the loan is for.
So how do you know if you as a borrower qualify for a jumbo loan? To secure a jumbo loan, you must start by having a high credit score , and low debt-to-income ratio. As a lender, there are some risks associated with providing jumbo loans since they are worth more money . In order to secure a jumbo mortgage, you will have to put down a higher down payment than with a conventional loan. Along with a higher down payment, the monthly payments and interest rates will also be higher- although in recent years interest rates for jumbo loans have been reduced. The Washington Post reports that today, the interest rates and down payment requirements are more aligned with conforming loans, making them more appealing for borrowers. Jumbo loan borrowers still typically need to prove they have cash reserves in the bank, a high credit score, a solid employment history and a low debt-to-income ratio in order to be approved.