What Exactly Is A Jumbo Mortgage?
The process of applying for a mortgage can be an overwhelming time as you collect all of your necessary documents, weigh out financing options and plan out your home purchase details. Thinking about committing to a mortgage can get you a bit nervous in general but hearing the term ”jumbo mortgage” can sound even scarier. So what is a jumbo mortgage? Let’s discuss what they are exactly and who they are for.
The definition of jumbo mortgage
Simply put, a jumbo mortgage is a home loan that exceeds the conforming amount set by the Federal Housing Financing Agency (FHFA). “Conforming” really means that the loan meets the requirements for purchase by a government backed entity like Fannie Mae or Freddie Mac. Jumbo loans can have attractive interest rates but can come with higher risks for the lender which in turn means they may have more strict requirements for the borrower.
Jumbo mortgage conforming limits
While this may be subject to change each year, the conforming limit for a single-family home in this year of 2021 is $548,250. This number also may be adjusted in some areas where housing prices are far higher than average. FHFA sets these baseline amounts each year by evaluating average home values in the United States with new loan limits that are shared by year’s end for the upcoming year.
How to qualify for a jumbo mortgage
The average person can qualify for a jumbo loan only with slightly different or perhaps more strict criteria. First, while a good credit score is important for any loan, jumbo loans are typically obtained by those with a score of 700 or more. A debt to income ratio of 36% or so is also a typical guideline. Finally, while you may find different programs in different areas you should plan on putting at least 20% down unless you qualify for a Veterans Affairs (VA) loan.
Loan rates and benefits
While you may think that with the higher risk there would be a higher rate that is not the case. Typically jumbo mortgage rates can be found for slightly lower than your average, standard 30-year fixed rate mortgage. The other good thing is that the mortgage interest deduction still applies so anyone looking to take advantage of this benefit on their income taxes may do so. Check with your accountant on just how much you can deduct depending on your status and how you file as amounts will vary if you are single, married and filing separately or jointly.