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What Is a Jumbo Loan?
A jumbo loan, or jumbo mortgage, is a type of financing that exceeds the limit established by the Federal Housing Finance Agency (FHFA). A jumbo loan is not eligible to be purchased, or guaranteed by Fannie Mae or Freddie Mac. Designed to finance luxury properties, jumbo mortgages normally come with more stringent requirements and may have new tax limitations. Due to Covid-19, underwriting guidelines have become more restrictive, and tougher to qualify for.
The value of a jumbo mortgage varies by state—and even county. The FHFA sets the loan limit, for different areas on an annual basis. As of 2020, the limit was set at $510,400 for most of the country. For counties that have higher home values, the baseline limit is set at $765,600, or 150% of $510,400. For Michigan and Florida, Jumbo loans therefore start at $510,401.
How Jumbo Loans Work:
If you are looking to purchase or refinance a luxury home, you may need Jumbo Mortgage financing.
Typically you will need a minimum FICO score of 680-700, or higher.
You must be able to document your income through traditional means. (alternative programs may be available)
Debt to income requirements are more restrictive.
A total debt to income ratio of 43% or less, makes the loan a “qualified mortgage” as established by the Consumer Financial Protection Bureau.
Many lenders make qualifying even tougher.
Jumbo home loans also require more money in “reserves” than other loan programs. This means, in addition to your down payment, or equity in the home, you often need access to additional “liquid assets”. (easily available to you without penalty) Lenders may require 6,12,18 months of mortgage payments to be “liquid”.
If you are looking for an Interest Only Jumbo Mortgage, a mortgage where you only pay interest, qualifying is on the stricter side of the above guidelines.
Jumbo Loan Rates
Down Payment on a Jumbo Loan
Loans with less than 20% will require some type of mortgage insurance to protect the lender from default.