A jumbo mortgage is defined as a mortgage that is different to most conventional loans, mainly in part that amounts being loaned is considered above the basic conforming loan limits. In Dallas, the standard conforming loan limit is currently $548,250.
Here the term ‘conventional limits’ is used as a loosely categorized set of standards as determined by two well-known government-sponsored agencies. That is Freddie Mac (FHLMC), and its sister agencies Fannie Mae (FNMA).
The above two are large agencies that typically buy the bulk of residential mortgages in the U.S. from large banks and other lending institutions. This allows them to in effect, free up their liquidity to lend even more mortgages to the end consumers.
However, when either FNMA or even FHLMC limits do not really cover the entire loan amount (of the mortgage), then the loan is typically referred to as a form of “jumbo mortgage”.
As stated above, the current limit is set at $548,250 for a typical single-family home in Texas. However, certain states have considerably higher limits and they include Hawaii, Alaska, most of California, South Florida among other states. These federally designated high price markets have conforming loan limits up to $822,375.
Availability of jumbo mortgages
Jumbo mortgages are usually available for most primary residences, second homes or even vacation homes. They are also utilized for purchasing investment properties as well. Furthermore, they are also typically available in a wide variety of different terms that also include both fixed rate as well as adjustable rate loans. Most lenders and banks offer jumbo loans to qualified home buyers. However, the down payment requirements can vary greatly from a minimum of 5% down to min 20% down.
As the very term implies, a ‘jumbo’ loans will almost always have a slightly higher interest rate than the rest of the market and will also need to undergo considerably more underwriting rules. Apart from that, the down payment requirements today are very similar to those of conventional loans. There are many 90% and even 95% financing options available today from select lenders. Read more about the jumbo purchase requirements here.
When to opt for a Jumbo Mortgage?
Jumbo loans are only needed when the loan amount that is greater than the overall conforming loan limit in the geographical area of the applicant. In most of the country, that effectively means the applicant will be using a jumbo mortgage if the loan amount is greater than $548,250. Again, be mindful this is based on the loan amount and not the sales price of the property.
Eligibility criteria for a Jumbo Mortgage
By and large, a Jumbo mortgage has pretty much the same overall qualifying criteria as a typical conforming loan. In other words, the lenders will take a look at the overall credit score, the size of the initial down payment (amount to be paid upfront) the total monthly debt-related obligations that are relative to the overall income or the debt to income ratio, as well as any residual amount left over with the applicant after closing. Solid employment history and documentable income and assets will always be required.
Credit score requirements
Most credit score requirements are usually just about the same for either conforming loans or jumbo mortgages. A top tier credit score of 700 or higher, is ideal for acquiring a jumbo mortgage. However, even a 680 score can also get the job done, however, the interest rates will be markedly higher due to incurred higher risk.
Post closure liquidity requirements
Most reserves or post-closing liquidity requirements are also higher for Jumbo mortgages than more conventional loans. Generally speaking, many lending institutions are more interested to see at least a 3 months (or so) of reserves after the closing of the deal. On the other hand, conventional loan reserve requirements usually range from no time reserve limits to a full year. However, these requirements are in turn, largely dependent on a wide array of factors including not just the final credit rating but also the total amount of the down payment as well as the DTI. A simple rule of thumb is that if the debt to income ratio is low while the corresponding down payment is high, then the odds of an application being processed successfully are pretty high. Apart from that, Jumbo loans have a certain level of flexibility that sets them apart from their conforming loan counterparts.
Less than 20% down – no mortgage insurance
Most lenders will require 10-20% down payment to be qualified. However, select mortgage companies do offer financing up to 95%. The exact down payment required will depend greatly on the final loan amount and qualifications of the borrower. Nealy all the options today do not require monthly mortgage insurance, also known as PMI. Please visit the home page for the basic purchase and Jumbo refinance requirements, contact us with questions by calling the number above or just submit the Quick Call Form on this page.
Today’s jumbo mortgages are convenient due to the fact that it’s possible to qualify for a larger mortgage with minimum down payment. However, the down side is that the higher risk to the lender usually results in slightly higher costs and rates to the home buyer. Buyers can limit this will a greater down payment and/or choosing for a conforming loan when possible.
Eligible Veterans in Texas can also read the complete VA Jumbo loan guide here.
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