Wondering what is a jumbo mortgage? A jumbo mortgage is an ideal option for prospective homebuyers who want to invest in high-end properties. Such homebuyers may realize that conventional or administration-backed advances may not provide enough credit for them. A jumbo advancing is simply a mortgage that exceeds the limits set by Administration Sponsored Enterprises (GSE). The Primary entities that buy credits from lenders include Fannie Mae and Freddie Mac. The two agencies buy credits from lenders which they repackage and resell to the secondary market at Wall Street. In many states of the United States, the maximum limit of standard credit is $417,000. This figure is set by the Federal Housing Finance Agency (FHFA). A jumbo credit is above this limit. Having surpassed the amount set by GSE, a jumbo advance is risky and attracts high rates and vast deposit payment amounts. This article highlights and explains the key features of a jumbo mortgage and its benefits and downsides as follows:
Key attributes of a Jumbo Mortgage
Credit score-To qualify for this home advance, you need a minimum FICO mark of 700. However, some lenders may need a higher minimum score than the one mentioned above. Part of the reason why the minimum credit score figure is higher compared to administration-backed or conventional loans is to mitigate the higher defaulting risk associated with this mortgage.
Debt to income ratio– Before offering you the credit, lenders do evaluate your debt-to-income rate. They want to ensure that your income is not so much exposed to debts. In this connection, many lenders put a ceiling on their DTI at 45%.
Cash reserves– many lenders demand that you have enough amounts in your account to cater for 12 months loan payments.
Documentation-there are a variety of documents that you must present when applying for a jumbo credit. These include your federal tax returns, Wage and tax report, bank statements, and any information about the other accounts you’ve.
Home appraisal– Many lenders will demand that you appraise your property again to ensure that the amount that you’re paying is realistic. In this regard, lenders require that you perform a second home assessment.
Down payment amounts– because a jumbo loan doesn’t come with private mortgage insurance (PMI), it attracts a higher security deposit amount than FHA loans. To get the advance, you’re required to put down at least 20% of the total loan amount. However, some individual lenders can need a minimal front money of at least 10% of the total home value.
Interest rates-Although jumbo mortgage rates are a bit higher than the conforming home loans, many lenders offer the mortgage at reasonable prices. Therefore, if you intend to go for a jumbo mortgage, it’s essential to shop around to compare rates.
Closing costs-compared to conforming home loans, the jumbo loans have huge closing costs due to the vast amount involved.
Benefits of Jumbo loans
Convenience– The jumbo home loan enables you to acquire a property that you would not purchase by a single conventional loan. With a jumbo loan, you access enough amounts to buy your dream home.
Lower rates– Many lenders have lowered their prices for this particular loan type to entice more borrowers. Although these lenders may reduce the rate at a very slight margin, the difference may be significant due to the enormous amounts that the mortgage entails. In case you were to buy the property via conventional loans, you would have gone for more than one mortgage, which would be expensive as regards interest payment.
Acquisition of luxurious property-the jumbo loan enables you to acquire your high-end property, thus attaining your dream.
Downsides of Jumbo mortgages
Colossal down payment amounts-The amount that you’re required to put down when borrowing a jumbo loan is 20% of the total loan amount. This amount is by far huge compared to some administration-backed loans. For example, when applying for an FHA loan, you’re only required to put down 3.5% of the total loan amount.
Higher credit scores-Because a jumbo loan is not guaranteed by GSE; it is a risky credit than a conventional or administration-backed mortgage. Because of the high risk, a jumbo mortgage demands that you have to attain a minimum of 700 scores on FICO before you’re considered for the loan.
Higher interest rates– jumbo mortgages rates are higher compared to either conventional or administration-backed loans. This is because they are risky and stay in the books of the lender for a long time.
In spite of their downsides, jumbo mortgages are the best option for high-end clients who wants to buy luxurious properties. The mortgage avails enough amounts that you use to buy your dream home.
Ordinary loans including conventional and administration –backed programs may not provide sufficient amounts that you can use to buy a high-end property. In this regard, if you’re intending to buy a premier property, it’s advisable to apply for a jumbo loan. This article offers you the features, benefits and downsides of a jumbo mortgage.