Everything There is to Know About Jumbo Loans
Sometimes a traditional loan just isn’t enough to get the house you want. There is always the option of taking out a second loan, but that means more things to manage, remember, and keep track of.
Don’t give up hope, see if you are eligible for a jumbo mortgage, which has higher loan limits, and might just be what you need to get you into your dream home.
What Is A Jumbo Loan?
By simple definition, a jumbo loan is a mortgage that doesn’t conform to the loan limits set by Fannie Mae and Freddie Mac. In most areas, the maximum amount you can borrow with a conventional loan is $417,000 (although some high-cost areas have higher limits). This may seem like a lot, but sometimes your dream house just cost more. With a jumbo loan, you can get more.
How Jumbo Mortgages Work
Lenders understand that the limit set on conventional loans is not enough to purchase certain properties. That is why they offer jumbo loans so that borrowers don’t have to take out two or three loans at a time. While they are typically popular with high-income earners, pretty much anyone can get them as long as they meet the eligibility criteria.
Jumbo loan limits depend on where the property in question is located and how many units it has. For most parts of the US, the limits are set as follows:
- Single-unit property: between $417,000 and $533,850
- Two-unit property: between $533,850 and $645,300
- Three-unit property: between $645,300 and $801,950
- Four-unit property: over $801,950
In high-cost areas such as the US Virgin Islands, Hawaii, Guam and Alaska the limits are even higher. You can get up to $800,775 for a single unit property and up to $1,202,925 for a four unit property.
Are jumbo mortgages hard to get?
Qualification is a bit stricter compared to conventional loans, which makes sense because you’ll be applying for a lot of money. The good news though, is that it is now easier to qualify than it has even been in the history of jumbo loans. In fact, most jumbo lenders offer anything between 75 and 96.5% financing for your home.
Classifications of Jumbo Loans
Jumbo loans can be classified into two major categories:
- Super jumbo loans
These are jumbo mortgages have a value that is higher than $650,000. Maximums depend on each lender, but have been known to be as high as $20 million.
- Conforming jumbo loans
Thanks to new legislation we now have conforming jumbo loans. This type of jumbo loan has lower interest rates and mortgage premiums, compared to typical jumbo mortgages.
Jumbo Loan Eligibility
Your eligibility for a jumbo loan is determined by two main factors.
- Your credit score
While the value varies from one jumbo mortgage company to another, a score of 620 or more will make your work easier.
- Your debt to income ratio
The lender will want to know whether you have sufficient income to repay the loan, which is why most of them require a debt to income ratio that is lower than 38%. That means the total amount of money you spend on your mortgage payments should not take up more than 38% of your total income.
Once approved, you can use the loan to invest in a rental property, second home, investment property, or many other options. This is different to most mortgages, which only apply to your primary residence.
Apart from eligibility, what are the other jumbo loan requirements to put in mind? Check them out below:
Down payment: most lenders will ask for a 20% down payment. However, if you have sufficient income, the value might drop drastically, to as low as 3.5% down. Even a zero-down jumbo loan is possible. Contact our experts at TJC Mortgage to review your possibilities.
Mortgage rates: jumbo loans have higher mortgage rates compared to traditional loans, but not as high as you may think. The difference could be anything between .25 and .50%.
Private mortgage insurance (PMI): do jumbo mortgages require PMI? That is totally dependent on your lender. Some jumbo mortgage companies ask for a 20% down payment as a trade-off for PMI. But if you make a smaller down payment or opt for zero-down, chances are you will have to pay for PMI and a higher interest rate as insurance against the high risk the lender is facing.
Loan type: it is almost impossible to get a fixed-rate jumbo mortgage. Virtually all of them are adjustable-rate mortgages (ARMs).
How to Refinance Jumbo Loan
If you have a jumbo loan, you can refinance it in the same way you would refinance a traditional loan. The main difference is, with a jumbo refinance, you stand to save much more.
So what is jumbo refinance? It is a process where you take out a new mortgage to replace your existing one. Your new loan will be used to pay off the current one so that you now just focus on repaying the new one. Ideally, the new loan will have lower interest rates so you can take advantage of relaxed lending terms.
Should You Refinance Your Jumbo Mortgage?
Refinancing only makes sense if it will save you money. So what do you need to consider before applying? For jumbo loans certain indicators will help you save:
- If interest rates drop. This means you’ll owe less interest each month, which will reduce your payments.
- If you’ve paid off so much of your jumbo loan, that the remaining amount would qualify for a conforming loan. If this is the case, you can refinance your jumbo loan into a conforming loan, and take advantages of even lower interest rates and lower insurance premiums.
- If you are going to live in the home for at least 3+ more years. Remember that refinancing comes with fees and closing costs. It usually takes at least three years to break even.
- If you need cash. Jumbo loan cash out refinance helps homeowners to refinance their mortgages, lower interest rates, and get some cash in the process.