5 Useful Facts About Jumbo Loans
If you need a home loan that exceeds Fannie Mae and Freddie Mac’s conforming loan limits, it’s going to be what is known as a Jumbo loan. These five facts will help you understand what to expect when applying for a Jumbo loan.
- Conforming loan limits vary.
In most of the United States, the conforming loan limit is $417,000, but the limit is $625,500 in the highest-cost regions (a difference of 66%, or 2/3 higher). Only about 3% of the counties in the U.S. are eligible for the highest limit to require a Jumbo home loan (about 100 of roughly 3,300 counties). The Jumbo loan limit is in between for another 2.78% of counties (92). The 2015 conforming loan limit for Seattle and the rest of King County is $517,500 for a single-family home. Loan amounts greater than $517,500 are typically considered jumbo.
- Interest rates may be lower.
In the past, the higher amount and risk to the lender used to mean higher interest rates for a Jumbo loan vs. a conventional one, but in today’s lending environment, jumbo rates are often lower than conventional rates, surprising many consumers.
- 5/1 ARM is the most common type.
The most popular type of jumbo loans is a 5/1 adjustable-rate mortgage (ARM), which has a fixed interest rate for the first five years and then adjusts annually after that. Some of the larger lenders to offer jumbo loans are ING, Chase, U.S. Bank, Bank of America, GMAC Mortgage and Wells Fargo, although they aren’t the only ones.
- You may need to meet additional requirements.
The usual requirements for any mortgage loan apply with Jumbo loans, with some additions:
- Necessary documents: 30 days of pay stubs, 2 years W2’s, 2 years tax returns, two months bank statements and retirement accounts
- Down payment: Plan to put down at least 6-months of income, or 20% of the home’s value for more competitive pricing
- Low debt-to-income ratio: Many lenders adhere to a 43% maximum debt to income ratio using gross income
- Good credit score: Your FICO score should be 700 or above
- Reserves: Most lender will require ‘reserves’ of 6-12 months of the monthly payment- retirement accounts can usually be used to satisfy reserve requirements.
- Expect fewer repayment options.
Many repayment options have either been eliminated or are harder to qualify for: interest only loans are available but use more stringent guidelines, while pay-option ARMS and balloon payment loans are almost unheard of these days
Do you need a jumbo loan mortgage rate quote?