Undoubtedly, purchasing a villa or the luxurious mansion is everyone’s dream. The en-suite facilities: spacious & comfy bedrooms, a beautiful backyard with white fences, private swimming pool, and other amenities will make you both physically and mentally satisfied. When looking at such million dollar homes, you might wonder how on earth people could afford them? Do they grow money on trees? Well, you can do that too: pluck money from a tree and then purchase an expensive villa with it. Sounds astonishing, doesn’t it? The name of the tree is “Jumbo Loan.”
What are Jumbo Loans?
Jumbo loans, a type of conventional mortgage program, are shifting into higher gear and gaining high favor from the home shoppers. It’s a plus-size residential mortgage that exceeds the conforming loan limit set by Fannie Mae and Freddie Mac. Around 90 percent of all conventional mortgage programs in the US are secured by two government-sponsored agencies, which are:
- Federal National Mortgage Association (Fannie Mae)
- Federal Home Loan Mortgage Corporation (Freddie Mac)
Virtually, both these enterprises guarantee any loan type till it sticks to their “conforming loan” guidelines, which include the following factors:
- Debt-to-Income (DTI) ratio;
- Loan-to-Value (LTI) ratio;
- Credit history and FICO score; and
- Total mortgage amount.
As of 2018, the maximum limit (loan amount) set by Fannie Mae and Freddie Mac for conforming loans is $424,100 for a single-unit dwelling. In hot real estate markets, such as Los Angeles and New York City, the conforming limit can reach $625,500. This limit, however, may vary by counties. And, when a mortgage surpasses these thresholds, it’s called “jumbo loan.”
Loan requirements and eligibility criteria
Credit history: We know that many government mortgage programs such as USDA and FHA 203k loans allow homebuyers to qualify for a credit with CIBIL score of 620. However, most lenders require a FICO score of 740 or higher along with your all financial details. Furthermore, they would like to know if you have enough liquid assets on hand.
Debt-to-Income ratio (DTI): To secure this conventional loan, your debt-to-income ratio must be around 43 percent or less. However, it’s highly recommended to keep your DTI ratio below 36 percent as this value is considered highly acceptable.
Down payments: A few years ago, mortgagees required higher down payments, around 30 percent or more, to grant a jumbo loan. However, leading investors including Wells Fargo and PNC Financial Services Group are now helping buyers secure the jumbo mortgages by paying as little as 15 and 10 percent upfront.
Bank statements: Before handling you a six or seven-figure cheque, your financier will check all the documents that prove you have sufficient income and assets to afford the property you’ll get your hands on. That’s why you must prepare your tax returns, payslips, credit report, and other financial information beforehand.
Who should apply for a jumbo loan?
This option is perfect for home shoppers who have a credit score of above 700 and low debt-to-income (DTI) ratio between 36 and 43. For people looking to purchase higher-value properties or luxurious dwellings, opting for jumbo loans can be a great move. Under this program, borrowers can secure a mortgage of up to $2 million through a competent and reliable residential property loan provider.
If you too have been dreaming of buying a villa or an expensive house, then you can get an adjustable-rate as well as a fixed-rate jumbo mortgage with 15 and 30-year loan terms. Additionally, you don’t have to pay private mortgage insurance (PMI) on such loans as they usually require a higher down payment.
What types of properties can you purchase with jumbo loans?
You can utilize these mortgages for the following types of properties:
- Primary and secondary residences;
- Investment properties;
- Vacation houses; and more.
Remember, while jumbo mortgages fall outside the conforming limits and won’t be subsidized by Fannie Mae or Freddie Mac, you should still adhere to the guidelines set by the Consumer Financial Protection Bureau (CFPB) for “Qualified Mortgage” (QM).