Jumbo mortgage loans have high credit quality, but it’s in an amount above conventional conforming loan limits. Per Wikipedia, this standard is set by Fannie Mae and Freddie Mac, and sets the limit on the maximum value of any individual mortgage they will purchase from a lender.
Jumbo mortgage loans, are those that exceed the dollar amount loan-servicing limits put in place by Freddie Mac and Fannie Mae. This makes them non-conforming loans.
How do you qualify for a Jumbo Mortgage Loans?
It is important to note that Jumbo Mortgage Loans are not backed backed by Fannie Mae or Freddie Mac. They are riskier loans. The three common barrier borrowers must clear to get jumbo loan approval is having a higher income, higher credit scores and greater reserves. The average FICO credit score considered for a Jumbo Loan is around 740, although there has been cases that a Jumbo Loan was approved with a FICO score as low as 660.
Borrowers should be prepared to show enough reserves, or assets, to cover 6-12 months worth of mortgage payments. On average, the down payment on is between 10% – 20%. However, less than 10% will get you higher rates.
What are the benefits of a Jumbo Loan?
Firstly, Jumbo Mortgage Loans allow the borrowers to go outside of Fannie Mae and Freddie Mac limitations. You can still get a competitive interest rate and finance the home of your dreams without being restricted by the dollar limit on conforming mortgage loans.
Also, the rates on jumbo loans fluctuate and may be higher or lower than the conforming mortgage rate. For example, it has been seen that a 30-year jumbo rate was 4.62 percent, 8 basis points lower than a conventional 30-year fixed rate of 4.71 percent.
Additionally, it is a convenient way to finance property. Instead of getting two conforming loans to finance a home, the jumbo loan option eliminates that need. Some borrowers prefer to finance more of the home’s cost rather than tying up cash, making the jumbo mortgages a helpful financial tool.
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