These are some changing times, aren’t they? Loan limits for both Fannie Mae and Freddie Mac are adjusted annually to keep up with the cost of living – but with the appreciation that’s experienced lately in so many markets, it may not be enough. So, what do you do in that case? Qualified buyers can turn to a jumbo loan when the conforming loan limit is not enough.
Let’s look at some numbers. The maximum loan limit on conforming, conventional loans for 2022 is $625,000 for a single-family home but is increased up to $937,500 for designated high price areas. The underwriting guidelines for conforming loans are consistent with regards to things like minimum down payment, private mortgage insurance, debt-to-income ratio, minimum credit score and cash reserves required.
So what’s a jumbo loan Thierry? I’m glad you asked. A jumbo loan is a loan that is more than the FNMA maximum limits. It’s also considered to be a “non-conforming” loan. They allow lenders to set their own requirements on a maximum loan amount, the minimum credit score, maximum debt-to-income ratio and minimum down payment.
Rates paid on the jumbo loan may very well be the same as conforming loan rates, so it might sound and seem really logical that a larger loan would have more risk and, in turn, be priced higher. Lenders do not sell jumbo loans to FNMA which saves them the guarantee fee which is normally required. This in turn makes the jumbo loans more profitable, and borrowers are encouraged to shop the rates.
More than likely, a minimum credit score of 700 will be required, as well as a debt-to-income ratio below 45%. Even though many borrowers seeking a jumbo loan may be putting down 20%, it is possible to find a lender who may only require a 10% down payment. Lenders may also require six to twelve months of cash reserves due to the increased risk of the larger loan amount.
It is a common practice for banks to make jumbo loans to attract other business that the borrower might be able to influence like company, corporate, or investment accounts.
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