Jumbo loans are specific types of loans made by banks for home mortgages. They are special because these loans are for larger sized house loans. In order for a loan to be qualified as a jumbo one, it must be larger than the conforming loan limits.
The government Federal Housing Finance Agency sets these conforming loan limits through regulation. They are the agency that oversees the mortgage buying government sponsored entities Freddie Mac and Fannie Mae. Both of these groups purchase mortgages from the traditional lenders like banks and credit unions.
For the majority of the United States, jumbo loan limits start at $417,000. There are several states and a few hundred counties that have different loan limit amounts. Some of these limits range as high as $625,000 for their loan limits in areas that are the most expensive property markets.
Counting Louisiana parishes, Alaska boroughs, and the District of Columbia like counties, the U.S. has 3,143 counties. This does not consider the Virgin Islands, Guam, or Puerto Rico. An overwhelming majority 2,916 of these counties have the traditional limit amount of $417,000 for jumbo loan minimums.
Another 115 counties have loan limits that are in between the typical $417,000 and $625,000 maximum. This would include higher than usual priced real estate markets but not the most expensive ones like Los Angeles. In Colorado Denver County is one such example with a jumbo loan minimum of $458,850. Another 108 counties contain higher jumbo loan limits that start at $625,500. Included in these are the most expensive housing markets. Among these are such pricey counties as those found in New York City, Los Angeles, and San Francisco.
Several states and their counties are allowed to have higher conforming loan limits than the maximum amounts set out by the government housing authority. This includes Hawaii, Alaska, the Virgin Islands, and Guam. These are all treated specially because of a long time exception to the regulation. In Hawaii for example, four of its five counties have the highest limits for jumbo loan cutoffs. They range from $657,800 to $721,050.
Obtaining a jumbo mortgage involves some extra paperwork and proofs. Underwriting for these jumbo types is much the same as with standard conforming mortgages. There are more requirements for appraisals and down payments than with smaller mortgages. Some jumbo mortgage lenders have a requirement for two appraisals rather than the standard single one.
Down payments are also often more demanding for jumbos than for the traditional mortgages. Usually these lenders will want a higher down payment to ensure the individual can really afford and is committed to the loan. The minimum down payments for these more expensive home purchases will vary with each lender. They might be as high as 30%, or they could be as low as 15% to 20%.
Only applicants with significant finances need apply for these jumbo loans. A great number of their lenders require a minimum high credit score of 700 or better. They also insist on a debt to income ratio that does not exceed 43%. These lenders will want to see minimally from six to twelve months’ cash reserves in bank accounts as well.
Jumbo loans are not only made to individuals for their primary residences. Lenders will also issue them for vacation or second homes. Investment properties may also involve jumbo loans. They come with a wide range of terms and interest rates.
Jumbo loans can be issued as adjustable rate loans or fixed rate loans. They often come with higher interest rates than individuals would pay for conforming loans or for high balance conforming home loans. Sometimes in addition to the bigger down payment the underwriting standard will be stricter as well.