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What is a jumbo loan?
A jumbo loan, also known as a jumbo mortgage, is a special kind of mortgage loan where the amount borrowed exceeds the guideline limits set by a government-sponsored enterprise (GSE). GSE’s are private financial services corporations
(commonly known as Fannie Mae and Freddie Mac) created by the United States Congress to purchase home loans
and guaranteed by the United States Government.
Who opts for jumbo loans?
Typically, borrowers who are on the lookout for purchasing or constructing luxury homes and other high-value properties opt for
jumbo loans due to the size of the loan amount required to finance these types of properties.
What is the conforming limit for jumbo loans?
As of 2017, the conforming limit is set at $424,100 for most parts in the United States of America, excluding certain
high-cost areas (where the conforming limit is set at $636,150); any loan amount above the conforming limit is considered as a jumbo mortgage loan.
What is the maximum amount one can borrow as a jumbo loan?
There is a total cap on the maximum loan amount that can be disbursed under jumbo mortgage loans. This stipulates that a
borrower intending to buy a single unit or two units of residential properties shall be eligible to receive a maximum of up to $2 million, and a borrower intending to buy three or more units of residential properties shall be eligible to receive a maximum of up to $1.5 million only.
What about the rates of interest on jumbo loans?
The norm is that the interest rates for jumbo loans are higher than the rates charged for conventional loans. However, due to
the revisions in the GSE fees and on account of the intense competition between banks and other lenders, the rates of interest for jumbo loans have seen a considerable drop in recent times and are now almost on par with the rates of interest for conventional loans (and even lower than them, in some cases).
Why do lenders normally charge higher a down payment on jumbo loans?
Jumbo mortgage lenders may charge a higher down payment (sometimes up to even 20-30% of the total value), and may even require two appraisals instead of just one. This is due to the fact that jumbo loans come with a higher risk factor than conventional loans, primarily due to the large sums of money financed and the nature of the properties involved. Consequently, in case there is any default, it becomes harder for the lenders to quickly sell or dispose of such high-value residences.
Who is eligible to borrow a jumbo loan?
In order to be eligible to borrow a jumbo loan, some of the criteria that need to be satisfied, as stipulated by the lenders
are The following:
- Credit Score – Lenders primarily look for the credit score of the borrower to determine whether he/she is a suitable
candidate for jumbo loans. A credit score of at least 700 or higher is likely to be favorable with the lenders.
- Debt-to-Income (DTI) Ratio – The debt-to-income (DTI) ratio is a financial measure that is used to determine
the proportion of a person’s debt payments with respect to his/her overall income. In order to achieve a positive debt-to-income ratio, the individual’s income should be higher than his debt; this effectively means that the lower the DTI ratio is, the higher the chances are
for that person to be able to get the loan he/she requires. Ideally, a DTI ratio of 43% or less is what is required for an individual to qualify for a mortgage, but many lenders of jumbo loans prefer a DTI ratio of about 36% or lower.
- Reserves– Jumbo loan lenders typically look out for about six months to twelve months’ worth of reserves in
possession with the borrower in order to qualify for the mortgage.
- Proof of income – In addition to possessing necessary liquid assets and cash reserves, borrowers are also required to
furnish at least two years worth of tax documentation or any other relevant documents in order to establish the presence of a steady and consistent source of income.
How is the interest on jumbo loans charged?
Jumbo mortgage loans mostly carry an adjustable rate mortgage (ARM), where the rate is periodically adjusted at predetermined
intervals; the adjustment is in relation to the 1-year Libor rate. Apart from this method, there are also multiple other loan types and interest rates such as:
- Fixed rate amortizing–
In this method, the interest is charged at a fixed rate and the monthly mortgage covers both the principal and the interest payments. The payments over the entire course of the loan are equal and at the end of the loan term, the entire loan amount is paid off.
- Fixed rate interest-only –
Similar to the method above, the interest rate is charged at a fixed rate percentage. However, the monthly mortgage covers only the interest payments for an initial predetermined period. At the end of such period, the outstanding principal balance shall be re-amortized over the remaining loan term. This will most likely increase the monthly mortgage payments of the borrower.
- Amortizing ARMs (1/1, 3/1, 5/1, 7/1, 10/1)–
The interest in this case is charged at an adjustable rate and the entire loan amount is fully paid off at the end of the loan term. The frequency of interest rate adjustments depends on the type of ARM chosen by the borrower. For instance, with the 3/1 ARM type, the interest rate percentage is fixed for the first 3 years (36 months), after which it is adjusted annually during the remaining term of the loan. Due to the changing nature of an ARM, the monthly mortgage payments are not equal.
- Interest-only ARMs (5/1, 7/1, 10/1) –
This method combines the principal ideas behind the fixed-rate interest technique and the amortizing ARM method. However, it features an adjustable interest rate.
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We Work For You
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Because your financial situation is unique, your interest is better served if you’re not captive to a one size fits all mortgage offering. We represent a wide range of lenders so we can deliver to you the best loan at the best price for your particular circumstance.
Below are some of the types of loans available to you through our lender network.
Fannie & Freddie Eligible
The classic low cost home funding option. Available in both fixed and adjustable rate plans.
Ginnie Mae Eligible
The Federal Housing Administration (FHA), is a U.S. government agency that provides financing options that only require a minimum of a 3.5% down payment. FHA (203H) Disaster Loans however are eligible for 100% Financing.
Today, many homes require loans that exceed conforming loan limit amounts. Jumbo loans are a popular way to secure financing that exceed certain limits set by the Federal Housing Finance Agency (FHFA). Unlike conventional mortgages, a jumbo loan is not eligible to be purchased guaranteed or securitized by Fannie Mae or Freddie Mac.
The United States Veterans Administration (VA) provides up to 100% financing for homes as a benefit to veterans.
The U.S. Department of Agriculture’s (USDA) Rural Development Guaranteed Housing Loan program offer loans with up to 100% financing at rates below market and reduced mortgage insurance premiums with low credit score requirements.
A reverse mortgage or Home Equity Conversion Mortgage (HECM) is a type of home loan for older homeowners (62 years or older) that does not require the borrower to make monthly mortgage payments.
Private Equity Loans
Private Equity loans are based on the equity value of the property being put up for collateral and not necessarily on a borrower’s credit rating. This type of mortgage is a very useful for certain types of sophisticated borrowers such as those with multiple investment properties
Tam Funding is a licensed broker under the CA Dept. Real Estate: 02009074. Broker of Record NMLS : 1403204. Corporate NMLS: 1829222. CA Dept. Insurance: OL88065.
Borrower Conditional Approval is issued only when lender underwriting supplies a written clearance to do so. Borrower Conditional Approvals are conditional, not guaranteed and subject to lender review of all borrower information. The final funding of the loan is dependent upon all borrower conditions being met. Rates indicated are subject to market changes and may only be available to certain qualified borrowers. Tam Funding is an Equal Opportunity Real Estate, Mortgage & Insurance Broker
Equal Housing Lender
National Mortgage Licensing System
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