Jumbo loans are a viable option for borrowers interested in acquiring expensive, extravagant houses. If you have your eyes on your dream house but do not have the funding for it yet, here is a quick guide to help you identify the type of mortgage that best suits your needs.
Here are the answers to six frequently asked questions about jumbo loans.
FAQ #1: What Are Jumbo Loans?
A jumbo loan, often known as a jumbo mortgage, is a form of loan that exceeds the Federal Housing Finance Agency’s lending restrictions (FHFA). Jumbo mortgages are designed to fund luxury houses and residences in extremely competitive local real estate markets. They have special underwriting criteria and tax consequences.
FAQ #2: How Do Jumbo Loans Work?
If you want to buy a property that costs more than half a million dollars but you don’t have that much in your bank account, you can apply for a jumbo loan. Like conventional mortgages, jumbo loans come with a range of terms and repayment schedules and can be fixed-rate or adjustable-rate.
If you want to apply for a jumbo loan, you’ll have to meet considerably stricter credit standards than homeowners asking for a traditional loan. You need to fulfill strict standards regarding property type, down payment, credit score, and debt-to-income ratio because jumbo loans involve a higher credit risk for the lender. There’s also more risk because more money is involved.
FAQ #3: Why Are Jumbo Mortgages Treated Differently?
Lenders facilitate mortgages, which they then sell to mortgage investors such as Fannie Mae or Freddie Mac so that they may continue to make loans. A jumbo loan, unlike traditional mortgages, cannot be acquired, insured, or securitized by Fannie Mae or Freddie Mac. This is because these institutions are only allowed to buy mortgages that fall within the FHFA’s guidelines. Fannie Mae and Freddie Mac buy these mortgages and group them with other comparable loans to sell to investors on the secondary mortgage market.
FAQ #4: Who Can Take Out a Jumbo Loan?
Jumbo loans are best suited for earners with annual incomes ranging from $250,000 to $500,000. Essentially, people who make a lot of money but do not yet have millions in excess cash or other assets. Of course, how much you may borrow ultimately depends on your assets, credit score, and the value of the home you want to buy.
FAQ #5: How Much Money Can You Borrow?
Conforming loan restrictions are imposed by Fannie Mae and Freddie Mac, and they limit the amount of money you may borrow. Conforming loan limitations differ from state to state and market to market. In most regions of the United States, you may only borrow $548,250 for a single-family unit in 2021.
FAQ #6: How Do Jumbo Mortgage Rates Compare to Conforming Loan Rates?
Because there is so much risk involved with jumbo loans, it’s understandable that lenders would demand higher interest rates. On the other hand, market data shows that jumbo loan interest rates are highly competitive with market rates.
Jumbo loans are not given to just anybody. If you want to get one, you will have to meet strict qualifications and comply with complex requirements. If you have any concerns, you can always seek the help of mortgage experts in your area who can give you further tips on getting the best deal.
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