It’s getting near the holiday season as I write this. When I was younger and would open my Christmas gifts, I was a big believer that the best things come in big packages.
When talking about jumbo loans, we’re talking about BIG loan amounts. Sometimes you need these to afford a bigger home, while higher prices in certain areas of the country can also push you into the jumbo bracket. If you’re looking at jumbo loans, here’s what you need to know.
What Is a Jumbo Loan?
A jumbo loan is a loan that’s over the conforming loan limit set by government-sponsored mortgage groups, which are Freddie Mac and Fannie Mae. The conforming loan limits can differ based on where you’re at in the country as well as the type of loan you’re getting. Let’s get into that next.
What’s a Conforming Loan Limit?
Freddie Mac and Fannie Mae set the cap of how high any individual mortgage can be. In 2018, the conforming loan limit for these investors to buy mortgages has been set at $453,100 in the lower 48 states; if you live in Alaska or Hawaii, the limit is $679,650.
The above limits apply to one-unit properties. You can buy up to four units in a multi-family property and the limits get progressively higher as more units are added.
If your mortgage amount is higher than conforming loan limits, then it becomes a jumbo loan. VA loans also follow the loan limits set by Fannie Mae and Freddie Mac. If you live in select high-cost counties, your loan limit on a one-unit property is anywhere between $453,100 and $679,650.
For FHA loans, limits are slightly more complicated because they’re set on a county-by-county basis. This means that the conforming loan limit for an FHA loan could be anywhere between $294,515 and $679,650.
Jumbo loans can also be useful in areas where property values tend to be on the higher end, like New York City and many areas of California. Having a jumbo loan in these areas may make the difference in getting the space you need.
The Requirements for Jumbo Loans
Jumbo loans do have more stringent requirements that lenders have given the increased risk associated with getting a larger loan.
One of these is a larger down payment. This is typically required because more of a risk is taken by the lender with jumbo loans. If a house with a jumbo loan goes under and there haven’t been significant payments on it, the lender is hung out to dry in order to cover the costs lost.
At Quicken Loans, if you’re looking to buy a property with a jumbo loan amount of up to $1 million, you need a 10% down payment. The percentage required for a down payment increases with higher loan amounts and if you add a second unit. The same is true if you go from a primary home to a second home or investment property.
The one exception to this rule is that there is no down payment required on VA jumbo loans. However, you can only use your VA loan to get a primary property. All the standard VA loan requirements apply. You have to be an eligible active-duty service member, veteran or surviving spouse.
They’ll also want to know that you’re well-qualified to handle the payments for a certain time period after a job loss or other significant life events affecting your income. Depending on your loan amount, whether you’re a first-time home buyer and the size of your down payment or equity amount, you’ll need anywhere between 6 and 18 months of mortgage payments, including principal, interest, property taxes, homeowners insurance and homeowners association dues (if applicable) for a standard jumbo loan. VA loans require anywhere between two and six months of reserves. Other lenders may have different requirements.
In a nutshell, everything is jumbo about the jumbo loan: the size of the loan, the down payment and the monthly payments. This may sound alarming, but it’s normal in comparison to the size of an average loan. If you’re truly looking for that dream house and it falls into that range, don’t let the adjective “jumbo” deter you. Several loan terms are available in jumbo form and they have fixed or adjustable rates.
Are you interested in a jumbo loan? If so, you can apply online or give one of our Home Loan Experts a call at (800) 785-4788. If you have any lingering questions about the topic, please fire away below.
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