WHAT ARE JUMBO LOANS? DO I NEED ONE?

1. WHAT ARE JUMBO LOANS WHAT ARE JUMBO LOANS? DO I NEED ONE? DO I NEED ONE? ? In many ways, jumbo mortgages and traditional, conventional mortgages are very similar — they simply have stricter lending standards. Jumbo loans are loans that are above a certain conforming amount for a community; they are larger than average for the real estate market. In general, a jumbo loan is over approximately $417,000. It is usually used to purchase larger properties and luxury properties. HOW DO JUMBO LOANS WORK? The process of applying for and acquiring a jumbo loan is basically identical to a traditional mortgage — though there are certain lenders who offer jumbo loans and others who do not. The difference between a jumbo loan and a conventional loan is purely in the requirements associated with the loan and the ease of its use. Borrowers seeking a jumbo loan may need to put more money down and meet more stringent requirements. WHAT ARE THE JUMBO LOAN REQUIREMENTS? In past years, jumbo loan financing was very easy to get. Many people financed very large homes on adjustable rate mortgages… and they were eventually foreclosed upon. Unfortunately, jumbo loans are more difficult for banks to manage, because it can be more difficult for them to both maintain and resell the property following foreclosure. Stricter loan requirements and standards have been enacted due to these issues. Apart from simply being able to afford the jumbo loan, you will usually need a lower debt-to- income ratio than other borrowers. You will also need a more substantial credit score. Borrowers of conventional FHA loans can have credit scores that are as low as 620. Borrowers of jumbo loans will often need a credit score of 680 or more depending on lender. Jumbo loans also often require at least a 20% down payment.

2. CAN YOU GET A VA JUMBO LOAN? The VA will still allow for jumbo loans so long as the borrower meets the above criteria. However, the VA will only allow for 25% of up to a limit of $417,000. The borrower is going to need to make up the difference if they are purchasing a home that is significantly above this limit. If they are buying a $500,000 home, in other words, they are not going to receive assistance for $83,000 of the purchase price. DO I NEED A JUMBO LOAN? If you’re going to be borrowing over a certain amount of money for your mortgage, you absolutely will need a jumbo loan. However, in more expensive markets — such as California or New York — the cut off point for conventional mortgage loans may be much higher. You will need to consult with a lender directly to determine whether the home you want to buy falls under the jumbo loan spectrum. Even paying down a larger portion of the loan in cash may not necessarily convince a lender to write a conventional loan. Though you could put $200,000 down on a $500,000 house which would bring the mortgage down to $300,000, the lender will still be taking on the burden of potentially foreclosing on a “luxury” property. For qualified borrowers, a jumbo loan often makes sense. So long as your debt-to-income ratio is good, you can afford the property, and your credit history is solid, pursuing a jumbo loan should not make the process of buying a home significantly more difficult.