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04/18/2019What Is A Jumbo Loan?

A home mortgage that exceeds the limits set by Fannie Mae and Freddie Mac, two
government sponsored enterprises, is considered a jumbo loan. Especially in high-cost-

of-living areas and other hot real estate markets, the amount needed to purchase a

house may run significantly higher than the same house in other areas of the country.

Also called non-conforming mortgages, jumbo loans are considered riskier for lenders

because these loans aren’t guaranteed by Fannie and Freddie, meaning the lender is

not protected from losses if a borrower defaults.

How much?

In most areas now if a house costs more than $485,000, you might need a jumbo loan. These loans often require higher down payments upfront and higher credit scores to qualify.

While different from traditional loans, jumbo loans still have options for fixed and adjustable rates.

Your debt to income ratio (DTI) will also be taken into consideration when looking for this type of loan. This is to ensure that the lender is able to make the monthly payments and borrowers include a specific percentage, usually 45% or less.  

Your cash reserves are also a big part of being approved for a jumbo loan. If you have a year of payments set aside then that is usually a good start.

Additional documentation may be required because of the large amount that is being borrowed. A second appraisal could be needed as well.

There are many steps that need to be completed before you can finalize this process so be aware and know what you are looking for.   

The Positives of Jumbo Loans

The main benefit of getting a loan of this size is that you have access to the funds you need to buy the home you want. In areas where the cost of living is high this might be the only way you would be able to purchase a property.

You also don’t have to run around acquiring multiple loans to be able to pay. One jumbo loan will usually take care of the cash needed without having multiple mortgages.   

There is some good news for home buyers who want to avoid higher costs associated with jumbo loans. The Federal Housing Financing Agency recently raised the conforming loan limit by more than $30,000 for the majority of counties across the U.S.

The Potential Drawbacks

While jumbo loans might be a great option for some, others might need to weigh their options.

Jumbo loans aren’t federally backed which means that if the borrower defaults, the lender is responsible for what was not paid. This means that banks and mortgage companies can be picky when it comes to approving someone for a large loan like this.

For those with a lower credit score most of the time you will need a larger down payment. This is how lenders offset the risk for those with less than ideal credit.

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