If you live in an incredibly expensive market – or you just want the luxury that a large home affords. You may be wondering what your options are for mortgages that exceed federal limits for conventional loans. These mortgages are called jumbo loans, and, as you might expect. They have stricter eligibility requirements. Today, we’ll discuss what jumbo loans are, what some of the requirements are for lenders, and why a mortgage broker like District Lending can help you achieve your dream of a large, sumptuous home.
Jumbo loans are typically mortgages above $726,200
The delineation between a conventional loan and a jumbo loan is set by the Federal Housing Financing Agency; this agency oversees Fannie Mae and Freddie Mac. The Government Sponsored Entities (GSEs) guarantee the majority of mortgages in the United States. As of 2023, Fannie Mae and Freddie Mac will guarantee loans that are $726,200 and below in the majority of the United States. In Alaska, Hawaii, and some federally designated high-cost areas. That limit goes up to $1,089,300.
Those loans that exceed the limit set by the Federal Housing Financing Agency are called jumbo loans. And they cannot be purchased, guaranteed, or secured by Fannie Mae and Freddie Mac. Jumbo loans are considered high-risk by most lenders. So only a select group will provide these to very qualified borrowers; even then, there will be higher interest rates attached to the mortgage than are given to conventional loans.
You’ll need to jump through more hoops to get a jumbo loan
Mortgage lenders are very risk-averse. Especially after the housing market crash of 2008: they only give out mortgages to those who they are certain will not default and leave them with a property that they must resell. This hesitancy only heightens when it comes to very large loans. Because there’s a greater risk that the borrower’s financial circumstances will change. They will no longer be able to pay their mortgage.
To qualify for a jumbo loan, you’ll need to have a great credit score: some will accept scores as low as 700, but most will require substantially more than that. You’ll also need to have a debt-to-income ratio of below 43%. Meaning that no more than 43% of your monthly income goes to paying your minimum balances on your debts. The other major component is that you will need to put down at least 10% as your down payment. But many lenders will want 20% at a minimum.
Each lender is different, and each one will have slightly different requirements for a jumbo loan. Most will require extensive financial documentation to prove that. You will be able to pay for this loan over the long term. So expect to have a great deal of poking and prodding at your financial records.
This may also seem quite daunting but don’t despair. You have an ally in this process. That’s a trusty mortgage broker who will serve as your guide.
Everyone should work with a mortgage broker, but this is even more important for those seeking jumbo loans
Jumbo loans are much more difficult to attain than a conventional loans for the reasons above, and they’re also scarcer. This means that you’ll have fewer options. You’ll need someone who really understands the industry and can help you find the best deal among these.
Mortgage brokers like District Lending have years of experience in the mortgage industry. They work with dozens of lenders to find one that exactly matches their client’s situation. They’ll get to know your unique circumstances and hunt down the lowest possible rate you can achieve with your credit score, debt-to-income ratio, and potential down payment.
And it’s not just about getting the best deal for you upfront: a mortgage broker can also negotiate with lenders on your behalf, proving why you are entitled to an even better deal. Every tenth of a percentage point in interest rate matters even more when you have a large mortgage payment, as just 0.01% will translate to thousands of dollars over the life of your loan.
Furthermore, working with a mortgage broker to find a lender means you’ve built a relationship with a mortgage industry expert who can assist you down the line as well. They can notify you to rate drops and, should you find the new rate particularly tempting, help you to refinance so that you can take advantage of more favorable circumstances. You’ll be cared for throughout the life of your loan, with access to a knowledgeable and trustworthy company to assist you with all your mortgage needs.
If you want a very large home or are looking to purchase in an expensive area, you might need to borrow more than the FHFA is willing to guarantee, which is called a jumbo loan. These mortgages have stricter requirements and higher interest rates, and they are also offered by fewer lenders. This is why it’s essential that you work with a mortgage broker because they can help you hunt for the very best deals and negotiate on your behalf to ensure you pay the smallest amount of interest possible. Mortgage brokers are incredibly helpful for everyone, but they’re a true lifesaver for those seeking jumbo loans – be sure to reach out to a mortgage broker like District Lending today.