Technically speaking, jumbo loans are loans which exceed the limits set by Fannie Mae and Freddie Mac. These limits are applied to different areas within the United States and range from $417,000 – $625,500.
How Does A Jumbo Loan Work?
Fannie Mae and Freddie Mac are government-sponsored enterprises which buy conventional mortgages from lenders. Unlike these conventional mortgages, jumbo loans are provided by private institutions and not eligible for purchase by Fannie Mae and Freddie Mac.
More often than not, these jumbo loans are provided by banks. If you go straight to the bank for your jumbo loan, it is a one-stop shop. Their rates are their rates.
However, when you are working with a loan officer, the lender negotiates rates on your behalf. In many cases, this allows you as the borrower to find the lowest possible rate.
What’s the Catch?
Jumbo loans aren’t without their restrictions. These large private institutions are not just going to play willy-nilly with their bankroll. Typically, requirements to qualify for a jumbo loan far exceed those which are placed on the smaller, more traditional loans. These requirements could include:
- High Credit Scores
– Most private institutions will require a credit score of 700 or better.
- Lower Debt to Income Ratio – Typically, your jumbo loan should not exceed 38 percent of your pre-tax income.
- Larger Down Payment – You could be required to make a down payment of 30 percent of more.
Additionally, borrowers can also expect:
- To Incur a Higher Interest Rate
- Face Limits on Cash Out* Availabilities
(*Cash out loans allow you as the borrower to receive the money directly, rather than having to invest it into an entity, such as a house.)
Small, Medium and Large
While jumbo loans aren’t strictly broken into different sizes, it’s often helpful to think of them as small, medium and large. The larger your jumbo loan, the more restrictions you’ll typically face.
Expanded Options For Fairway Borrowers
We’re changing the jumbo loan playing field. More specifics will be released soon, but what we can tell you is this – our new product is going to expand your jumbo loan borrowing options.
Have questions about jumbo loans or other loan products? Give Rob a call.