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When Is a Jumbo Loan Needed?

Jumbo loans are more common today since building larger homes in residential areas has become 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 and surrounding metropolitan cities where it is considered prime property and much more expensive than other locations around the country. Since conforming mortgages have loan limits, any mortgage amount that is above the loan limits for the area will have to be a jumbo loan.

Conforming mortgages, those that are bought by Fannie Mae and Freddie Mac, have specific loan limits that are updated each year. At this time, the conforming loan limit is $417,000 in almost all states. A person will have two choices when the mortgage amount is above the loan limit; use assets to make a larger down payment and take on a conforming mortgage or use less assets and take on a jumbo loan.

When it comes to qualifying for a jumbo mortgage, borrowers usually have the same document requirements as conforming loans since employment, income and assets will all be verified by the lender. While this may be the same, guidelines for approval can be stricter because there is more risk to the lender when approving jumbo financing.

Borrowers who are looking for a jumbo

loan should have an excellent credit history and high credit scores. The required debt to income ratio is usually lower than what is accepted for a conforming loan. Even the loan to value ratio is often lower which means that the borrower must have a larger jumbo loan down payment of at least 20% or more. Lenders typically require a certain amount of reserves when approving a mortgage and for a jumbo loan, this can be a minimum of six months and as high as twelve months. Because these loans represent a higher risk, lenders may require two appraisals to verify the market value of the property; it all depends on the lender and the guidelines.

Jumbo mortgage rates are usually higher than conforming mortgage rates since, again, these loans present a certain amount of risk to the lender because some mortgage lenders will keep these within their own portfolio. However, jumbo rates have been very close and even lower at times than other rates being offered. To be considered for the lowest jumbo rates, borrowers should try to have the highest credit score possible before submitting a jumbo mortgage application.

If you think a jumbo loan is needed, contact a reputable Florida mortgage broker who offers jumbo mortgages and who will be able to show you the options available. Since rules for loan limits change, there may be the possibility 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 since lenders often consider this as profitable business.

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