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Monday 11/20/2017 Mortgage Rates

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Jumbo Loans

The size of a jumbo loan exceeds that of a conventional loan's limit as mandated by Fannie Mae and Freddie Mac. These limits are $417,000 in "general" areas, and $625,500 in "high cost" areas.​

The Requirements

Wells Fargo, JP Morgan Chase, Bank of America, and Quicken Loans are a few reputable lenders you can trust with a jumbo loan. Below are three all-inclusive conditions for being eligible for a nonconforming loan.  

  1. Down Payment: As long as your debt-to-income ratio is 30-36% and you agree to have interest rates of 0.25% higher than conventional rates imposed on other loans, your down payment can be as low as 10%.
  2. Credit Score: Conforming loans and non-conforming loans have the same requirement here; 680 and up is ideal.
  3. Reserves: Sometimes referred to as "post-closing liquidity", this requirement demands that the borrower should have 12 months worth of 50% liquid and 50% retirement assets, contrary to the liquidity of 6 months needed from conforming loans.

The Advantages of Jumbo Loans

It is precisely this surpassing of the conventional loan limit that gives jumbo loans their popularity.

Since July of 2013, the demand for jumbo loans began to rise alongside top end market activity and hasn't stopped since. The reason for this is that jumbo loans give homeowners interested in larger real estates the freedom and funds they need to get started on the ownership process and create a form of wealth continuity for the family, although the process takes some time. Following this rising demand for jumbo loans, the interest rates fell from what was 0.25% higher than conventional loans to 0.25% lower than conventional loans. Refinancing to a jumbo loan can have you saving hundreds of dollars a month, thanks to the lower rates.

Jumbo loans' pros rundown:

  • Due to the sizable amount of funds, you won't be taking out another loan anytime soon.
  • You can choose between a fixed-rate and an adjustable-rate mortgage.
  • The rates for a jumbo loan have been lower than ever in recent years because of the growing demand from more and more homeowners.
  • More lenient towards higher debt-to-income ratios. In some situations, borrowers with a 46% debt-to-income ratio can be approved for a jumbo loan.

The Disadvantages of Jumbo Loans

Just because a jumbo loan has rates 0.25% lower than conventional rates, that doesn't always translate into lower monthly payments. The lender is always trying to reduce risk and will also do this by increasing the rates as the amount of the loan gets larger. The rates on a jumbo loan can be up to the 0.5% higher than that of conventional loans.

Once you do the math for the savings you would be making with a jumbo loan, go ahead and get approved. You will receive a Loan Estimate and a Closing Disclosure statement following your preapproval to give you a better understanding of how your credit will be distributed.

Jumbo Loans' cons rundown:

  • Higher rates than conforming loans will ensue if the loan amount is much higher than conforming loans.
  • Very expensive.

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