Find out the jumbo loan limit in your county and how it might affect your home-buying experience.
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Jumbo Loan Basics
A jumbo loan is a type of mortgage loan that exceed the limits set by the federal government. The limit is currently $417,000 for a single-family home, but it can be higher in some high-cost areas. Jumbo loans usually have higher interest rates than conventional loans because they are considered riskier.
What is a jumbo loan?
A jumbo loan is a home loan for an amount that exceeds the conforming loan limit set by the federal government. Because these loans are not backed by the government, they typically come with higher interest rates and may require a larger down payment. Contact a jumbo loan specialist to see if this type of loan is right for you.
What is the jumbo loan limit?
The jumbo loan limit is the maximum loan amount that a lender will extend to a borrower for a jumbo loan. Jumbo loans are loans that are above the standard loan limits. The standard loan limit is $453,100 for most U.S. counties, but can go higher in high-cost areas.
The jumbo loan limit varies by county and can be as high as $679,650 in some areas of the country. A jumbo loan allows borrowers to finance homes that are more expensive than the maximum loan limits set by Fannie Mae and Freddie Mac, the government-sponsored enterprises (GSEs) that provide stability in the mortgage market.
Jumbo loans are not backed by the GSEs and are not guaranteed by the government, so they typically have higher interest rates and stricter underwriting standards than conventional loans. Borrowers who need a jumbo loan must have strong credit, income, and assets to qualify.
Jumbo Loan Benefits
A Jumbo Loan is a mortgage that can be used to finance the purchase of a home that costs more than the conforming loan limit. The limit is set by Fannie Mae and Freddie Mac, the government-sponsored enterprises that purchase loans from lenders. In 2021, the limit is $822,375 for a single-family home. Jumbo loans usually have higher interest rates than conforming loans. But, they also come with some great benefits.
Lower interest rates
Jumbo loans often carry lower interest rates than conforming (conventional) mortgages. Interest rates for jumbos have been consistently lower than rates for 30-year fixed-rate conventional loans, giving homeowners the ability to save hundreds of dollars each month.
No mortgage insurance
Mortgage insurance is typically required on any loan with less than 20% equity. However, jumbo loans never require mortgage insurance because the loan amount is always less than the value of the property, even if it’s only by a few thousand dollars. This can save you a lot of money over the life of your loan.
Lower interest rates
Jumbo loans often come with lower interest rates than their smaller counterparts. This is because jumbo loans are seen as less risky by lenders, so they are willing to offer lower rates in order to attract borrowers.
Higher loan limits
The biggest advantage of a jumbo loan is that it allows you to finance a higher-priced home than you would be able to with a conventional loan. The maximum limit for a conventional loan is $484,350 in most parts of the country, but jumbo loans can go as high as $2 million or more in some areas.
More flexible underwriting standards
Another advantage of jumbo loans is that they often come with more flexible underwriting standards than smaller loans. This means that you may be able to qualify for a jumbo loan even if you wouldn’t be able to get approved for a conventional mortgage.
Jumbo Loan Drawbacks
Jumbo loans come with a few potential drawbacks because of the high loan amount. The most common drawback is the higher interest rate. Jumbo loans also come with stricter qualification requirements, such as a higher credit score and down payment. Another potential drawback is that not all lenders offer jumbo loans.
Higher credit score requirements
In order to qualify for a jumbo loan, you will generally need to have a higher credit score than for a conforming loan. The exact score requirements will vary from lender to lender, but you can expect to need a score of at least 700 in order to be eligible. If your score is below this threshold, you may still be able to qualify for a loan, but you will likely have to pay a higher interest rate.
Higher down payment requirements
Lenders typically require a down payment of at least 20% on a jumbo loan, though some may go as low as 10%. That’s a higher. On a $1 million loan, for example, you may be able to put down 10% and borrow the other $900,000 from the lender.
However, putting less money down could make it harder to get approved for the loan. And if you do get approved, you might end up paying more in interest and private mortgage insurance (PMI) premiums.
To avoid paying PMI on a jumbo loan, you’ll need to put down 20% or more. This could make it harder to qualify for the loan if you don’t have a lot of cash saved up.
Jumbo Loan Alternatives
A jumbo loan is a type of mortgage loan that is too large to be sold to government-sponsored enterprises Fannie Mae or Freddie Mac. Jumbo loans are available in both fixed-rate and adjustable-rate mortgage (ARM) form. Because jumbo loans are not backed by these enterprises, they usually come with higher interest rates and down payment requirements than traditional home loans.
A portfolio loan is a mortgage that’s not sold to Fannie Mae or Freddie Mac. That means the lender keeps the loan instead of selling it on the secondary mortgage market.
Portfolio loans are sometimes interest-only loans, which can be a good choice if you need a lower monthly payment so you can afford a more expensive home. But, since these loans are interest-only, your monthly payment won’t go towards paying down the principal of the loan, only the interest.
If you don’t plan to stay in your home for more than a few years, an adjustable-rate portfolio loan could be a good choice. These loans offer lower rates for an introductory period (usually 3-10 years), after which the rate adjusts annually based on market conditions.
Another advantage of portfolio loans is that they can be tailored to meet your unique needs. For example, if you have less-than-perfect credit or a unique financial situation, a portfolio loan could be a good option.
Private mortgage insurance
The first thing to know is that there are two types of PMI- private mortgage insurance and mortgage insurance premium. Although both protect the lender if you default on your loan, they work a little differently.
Private Mortgage Insurance, or PMI, is insurance that lenders require borrowers to have when they get a mortgage and don’t have a down payment that is equal to at least 20% of the home’s value. This protects the lender if you were to default on your loan. It is paid for by the borrower and is a percentage of the loan, usually 0.3% to 1.5% of the loan amount annually.
Mortgage Insurance Premium (MIP) is similar to PMI in that it protects the lender if you default on your loan. However, MIP is required for all FHA loans regardless of how much money you put down. MIP is also paid for by the borrower as a monthly fee, as opposed to a percentage of the loan like PMI.