Desert 2 Mountain Realty
Desert 2 Mountain Realty
Teresa Whitney, Desert 2 Mountain RealtyPhone: (480) 495-2679
Email: [email protected]

Do You Need a Jumbo Loan?

by Teresa Whitney 07/27/2020

Photo by Bruce Clark from Pexels

The Federal Housing Finance Agency (FHFA) limits how much you can borrow to buy a house. If you want to take out a mortgage that is above the limits, you have to apply for a jumbo mortgage. As of mid-2019, the limits were increased to $484,350 for most of the country. Some places – states and counties – have a higher limit of $726,525. Those areas are places that have higher home values, and include Guam, Alaska, the U.S. Virgin Islands and Hawaii, among other places. Loans under those values are conforming loans, and those over are non-conforming loans.

Credit Risk

Because jumbo loans are riskier, the applicant has to jump through more hoops to get one. The major hoop is that your credit score must be higher. Most jumbo lenders require you to have a credit score of at least 680, though some require you to have a credit score of at least 720 or higher. Jumbo loans are riskier because they are not backed by Freddie Mac or Fannie Mae, and because of the obvious — the lender is lending more money.

Additionally, your debt-to-income (DTI) must be lower than 43 percent, though some lenders will refuse to give you a jumbo loan unless your DTI is lower than 36 percent. Your debt-to-income ratio is the difference between your income and the amount you pay out in liabilities, including the mortgage.

Another common requirement of a jumbo mortgage is that you have to have cash on hand to cover a certain number of payments. Some lenders could require as much as six months of reserves.

Mortgage Rates

Often, the APR on jumbo loans is higher than it is on conforming loans because of the extra risk involved in that type of loan. However, interest rates dropped in the second quarter of 2019 for jumbo loans, so you could get this type of mortgage for as low as 3.8 percent. If you are applying for a jumbo loan, be sure you check the requirements and rates of several lenders.

Jumbo Mortgage Down Payments

Previously, a lender might have required you to come up with at least 30 percent down payment for a jumbo loan. However, with the better economy, some jumbo lenders have loosened their restrictions, including lowering the amount of a down payment to as low as 10 percent. Again, if you prefer a lower down payment, shop around. You may also be forced to have private mortgage insurance if your down payment is less than 20 percent.

Tax Breaks

The cap on the mortgage interest deduction is $750,000, so you won’t get a large tax break on a jumbo loan. Make sure you consider that, among the other requirements as set forth above, before you fall in love with a house that requires a jumbo loan.

About the Author
Author

Teresa Whitney

Hi! My name is Teresa Whitney. I’ve listed and sold many properties in Arizona cities over the years. My success is based on positive referrals. I have earned the respect of my clients by simply being available. I will be the same for you. Having worked in the legal field for 30+ years, I pride myself on my thinking outside the box when it comes to facing hurdles (very common in both the legal and real estate venues) many of which most people do not expect to happen, or want to deal with it if it does. Thus, preparation and research is very important and familiar territory for me to reach that accomplished result based on needs and wants. It is the key to customizing those needs and wants of a client. This is where I come in strong. Being detail-oriented I am a great listener! I understand and work well with both Buyers and Sellers. My passion is real estate is to strive to personalize all of my clients’ needs and wants in the real estate market!