What are Jumbo Loans?

A Jumbo Loan, also known as a Jumbo Mortgage is a kind of Home Loan that exceeds the Loan Limits set by Federal Finance Housing Agency.

Unlike Conventional Loans, Jumbo loans are not purchased, guaranteed or secured by Fannie Mae or Freddie Mac. These kind of loans typically are designed to Finance Luxury Properties and homes in a highly competitive Real Estate Environment.

Jumbo loans have their own underwriting criteria and requirements that vary from lender to lender. The FHFA sets Conforming Loan Limits on annual basis for different counties. The limit for 2022 was set at $647,200 for most of the Continental United States. The FHFA has set different loan limits for areas outside of Continental United States for loan limit calculations. For example areas like Hawaii, Guam, Alaska and US Virgin Islands, the limit is 970,800$ as of 2022.

The Average APR of Jumbo Mortgages are often at par with Conventional Mortgages. The down payment is 10% to 15% of the total purchase price. If you have your sight on a 650,000 dollar home or more in the Continental United States, then you are mostly headed towards a Jumbo Mortgage.

Jumbo Loans tend to have a higher risk towards the lender as they are lending the borrower more money and the Loan is not guaranteed by Fannie Mae or Freddie Mac. Therefore, for a Jumbo Mortgage, Credit Check is often more stringent as compared to a Conventional Mortgage. To get approved for a Jumbo Loan, you often need a Credit Score of 700 or above and a low Debt to Income (DTI) ratio, however the guidelines may vary from Lender to Lender. The Debt to Income Ratio (DTI) should be under 43% and preferably close to 36% in most cases.

Though a Jumbo Mortgage is a non-conforming home loan, they typically still fall under the guidelines of what the Consumer Financial Protection Bureau (CFPB) calls a Qualified Mortgage. A Qualified Mortgage is a lending system with standardized terms and rules, for example a 43% Debt to Income Ratio (DTI) or less.

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