A Jumbo Mortgage and Super Jumbo Loan are options for home buyers that need a loan with an amount that exceeds the limitations set forth by government-sponsored entities. In other words, when a loan amount reaches a certain point, Jumbo Mortgages and Super Jumbo Loans can offer high-end financing that a traditional loan can’t.
What is a Jumbo Mortgage?
This type of loan is made for those who need financing that surpasses certain limits. The Federal Housing Finance Agency (FHFA) sets loan financing limits. Conventional loans can be purchased, secured and guaranteed by Fannie Mae and Freddie Mac. On the other hand, jumbo loans are just the opposite. This means lenders are not protected from loss if a borrower defaults A jumbo mortgage was created to help people finance luxury properties. Also, these loans come with unique requirements, which we will cover in a later section.
Jumbo mortgage limits vary by state and sometimes even by county. The maximum amount set by the FHFA is $484,350 for most of the country. Loan amounts that exceed this limit will require a jumbo mortgage. This loan type comes with either an adjustable or fixed interest rate and with a variety of different terms.
Can I Get a Jumbo Loan Right Now?
It’s not a secret that the COVID-19 pandemic has an impactful effect on the loan market. All things considered, jumbo mortgages are still available just less common at this time. Some lenders are still offering them, but with stricter qualifications and terms. Lenders are rightfully concerned about the risk of handing these loans out especially during this time. If you are employed in a position that was negatively impacted by the pandemic, it may be harder to get approved for a jumbo mortgage right now. Also, compared to things pre-pandemic, a higher credit score than needed and a down payment of at least 20% will put you in a good position to qualify.
Qualifying for a Jumbo Loan
The qualifications for a jumbo loan are much stricter than a conventional loan due to how large the loans are and the risk they pose to lenders.
Here are the basic criteria if you are considering this loan option:
- Credit Score – Some lenders will require a FICO score of 700+ in order to even qualify.
- Debt-To-Income Ratio (DTI) – Your DTI will be considered. This ensures lenders that you won’t become over-leveraged and have enough flexibility in cash reserves for a loan like this. Some lenders have a 45% DTI cap, while others don’t.
- Cash Reserves – You will increase your approval chances if you have a substantial amount of funds saved in a bank account. It is common for lenders to ask that you show proof of enough cash reserves to cover one year or payments.
- Documentation – You’ll need to prove you have good financial health. Extensive documentation should be prepared. Get ready to pass or tax returns, W-2’s or any 1099s. Also, it would be wise to include bank statements and any investment account information.
- Appraisals – Certain lenders will require a second appraisal on the home you are trying to purchase.
Consider all these qualifications before making a final decision.
Should you Choose this Loan Option?
A jumbo mortgage is appropriate for the higher-income earner segment called HENRY. HENRY stands for “high earners, not rich yet” meaning you make a lot of money but don’t have extra millions in cash–yet. This is often those who make between $250,000 and $500,000. Individuals in the HENRY segment may not have built enough funds to purchase a luxury home cash, they generally do have better credit scores. Also, these earners tend to have established retirement or investment accounts. They have been able to contribute more to these accounts, unlike the average borrower.
It’s important to note that there is no favorable tax break for this loan. The mortgage interest deduction limit is 750 thousand for any new debt.
With a jumbo mortgage, you’ll get great rates for your big loan. With a choice between fixed or adjustable rates, our jumbo loans offer maximum flexibility for home financing of larger loans. If your next house is within the $10,000,000 maximum loan amount, contact us today to get started!
Got questions? Give us a call! One of our mortgage specialists would be happy to answer all of your questions and get you started with a great low rate today!