What is a Jumbo Loan? A Primer on Requirements, Lenders & Limits
What is a jumbo loan? Any time a loan amount exceeds the conventional loan limit set by Fannie Mae/Freddie Mac for a county, it is considered a jumbo loan. The current conforming loan limit for single family homes is $417,000 in most states and $625,500 in certain high-cost areas.
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Because jumbo loans exceed the normal thresholds and therefore aren’t backed by federal agencies the same way conventional mortgages are, lenders inherently take on more risk when they extend them. In order to qualify, applicants typically will need to provide proof of income, an impeccable credit score (usually in the 700-720 range), a certain debt-to-income ratio, and the ability to pay a relatively high down payment.
Although plenty of lenders do offer jumbo loans, they are not as easy to get as they once were. By August 2007, many lenders were scared away from the jumbo loan market, and although they have gradually returned, requirements have become stricter.
Requirements also vary from lender to lender — while some specify that these loans may only be used for primary residences, others will extend jumbo loans to investment property or vacation home purchases. For this reason, it is important to shop around and compare when looking at jumbo loans.
What is a Jumbo Loan? Bigger Properties Require Bigger Loans
Jumbo loans are typically used when someone wants to purchase or refinance a luxury home, often in a competitive market, that requires a loan amount above the conventional loan limits for the county the property is in. Jumbo loans typically will have slightly higher interest rates and down payment requirements (usually at least 20 percent for a purchase).
Jumbo Loans vs. Super Jumbo Loans
Super jumbo loans are simply loans that exceed the amount of jumbo loans — although that threshold varies from lender to lender. Some lenders constitute a loan as a “super jumbo loan” if it is above $1 million, while others may use super jumbo loans to lend between $2 million and $20 million or above.
Jumbo Loan Limits
Because the conventional loan limits change each year, the jumbo loan limits also change accordingly. Each year, Fannie Mae (FNMA) and Freddie Mac (FHLMC) set the loan limits by county for the “conventional loan limit” that they will loan money at. Any loan over this conventional loan limit is considered a jumbo loan. While loans of this size were negatively affected by the subprime housing crisis, they’ve seen a resurgence in recent years, largely due to banks seeing them as a “sweet spot” niche. Because most clients asking for these loans are wealthy and likely have existing relationships with the bank, lenders increasingly see these loans as fairly low risk options.
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