Jumbo loans are more common today since building larger homes in residential areas has become easier and more acceptable. When someone needs a mortgage for a home that has a higher market value or is located in a high-cost area, they often need a jumbo loan. High cost areas are normally within metropolitan areas or adjacent suburbs where, often times, even the land comes at a premium. Conforming mortgages have loan limits and, as you might already suspect, any mortgage amount above that conforming loan limit for the area will require a jumbo loan.
Conforming Loan Limits & Jumbo Loans
Limits for conforming mortgage, which are those purchased by Fannie Mae and Freddie Mac, are updated each year. At this time, the conforming loan limit is $453,100 (2018) in almost all states. A person will have two choices when the mortgage amount is above the loan limit:
- Make a larger downpayment to get the loan value below the conforming limit
- Use less assets and take on a jumbo loan
Qualifying For Jumbo Loans
When it comes to qualifying for a jumbo mortgage, borrowers usually require the same documentation as conforming loans, including lender verification of employment, income and assets. While this may be the same, guidelines for approval can be stricter because the lender is taking on additional risk when financing a jumbo loan.
Borrowers seeking a jumbo loan should have an excellent credit history and high credit scores, preferably a 740 middle-score or higher. The required debt-to-income (DTI) ratio is usually lower than what is accepted for a conforming loan. Even the loan-to-value (LTV) ratio is often lower which means that the borrower must have a larger jumbo loan downpayment of at least 20%.
Lenders typically require a certain amount of cash reserves when approving a mortgage and for a jumbo loan, which can be a minimum of six months and as high as twelve months, depending on the lender. Additionally, due to the increased risk to lender, often times lenders may require two appraisals to verify the market value of the property– but it all ultimately depends on the lender’s in-house guidelines.
Don’t Rule Out Conforming Loans Too Soon
If you think a jumbo loan is needed, contact a reputable Florida mortgage broker who offers jumbo mortgages and can present you with all your options. As rules for loan limits change, generally annually, there may be a possibility to qualify for a conforming mortgage program, especially if the property is more than one unit. On the other hand, the qualifications a lender requires for a jumbo loan, as well as jumbo rates, can be very competitive.