What Is A Jumbo Mortgage?

When a regular mortgage isn’t enough, a jumbo loan may be right for you! A jumbo loan is used to finance properties that are too expensive for a conventional mortgage, and we can help you determine whether a conventional mortgage simply won’t be enough to cover the expense of the home you want to purchase. Because they are so large, jumbo mortgages are stricter and harder to apply for, but if you’ve got a good credit score and a low debt-to-income ratio a jumbo mortgage may be right for you! Continue reading to learn more about jumbo mortgages, and if you’d like to schedule a mortgage financing consultation with Patriot Home Mortgage, contact us today! We serve clients across the Western United States, from Colorado to California. 

Jumbo vs. Conforming Loan

In most states, the conforming loan limit is around $540,000, though this varies by state and you’ll need to consult with a mortgage expert to understand the limit, as determined by the Federal Housing Finance Agency (FHFA). You can find the conforming loan limit for all U.S. counties on the FHFA website. If you’re looking for a mortgage amount that is greater than the local conforming loan limit, you’ll need a jumbo loan.

How Do Jumbo Mortgages Work?

It’s helpful to first understand what a conforming loan is, and why they have a lending limit. The FHFA regulates Fannie Mae — the Federal National Mortgage Association (FNMA)  — and Freddie Mac— the Federal Home Loan Mortgage Corporation — was created during the Great Depression in order to make sure that mortgage lenders have enough cash to lend to people who want to buy a home. In order to ensure this, the FHFA authorizes Fannie and Freddie to buy loans from banks, credit unions, and other lenders, but only if they meet specific loan criteria, like loan limits.

Once Freddie and Fannie buy these loans, they combine them into mortgage-backed securities (MBS) that investors buy and sell, similar to stocks. The proceeds from these sales is then use to secure more mortgages, keeping the mortgage process going. Essentially, the ability to sell a mortgage to Fannie Mae or Freddie Mac is a safety net for the lender, keeping them from losing money when people default on their mortgages. 

The limit for conforming loans exists because mortgages that are larger than this limit are riskier, and lenders are much more cautious in their effort to ensure that the person applying for the mortgage will be able to repay their loan.

Applying For A Jumbo Mortgage

Since jumbo mortgages are riskier, the lender is going to be much pickier about your credit score and debt-to-income ratio. Many lenders require a credit score of 720 or better for jumbo loans, though this does vary depending on the lender. Jumbo mortgages also often require larger down payments, ofter greater than 20%, and sometimes as high as 30%. 

In order to ensure that you’ll be able to pay off the loan over time, lenders will also look at your cash flow and debt-to-income ratio. Essentially, your debt will be divided by gross monthly income, and the ratio will determine how much more debt the lender thinks you will be able to safely take on. Jumbo loans also tend to have higher interest rates, higher closing costs, and additional appraisals in order to confirm the property’s market value. 

All in all, applying for a jumbo mortgage is an in-depth process, and it’s best to have a mortgage expert like those at Patriot Home Mortgage to help you through the process.

Should I Avoid Jumbo Loans?

The answer to that question depends on your goals and your unique financial situation! Not everyone will meet the strict qualifications for a jumbo loan, but even if you meet them, you’ll need to consider whether it’s a good financial decision for you. You’ll need to take into account the local real estate market, whether you’ll be looking to sell in the future, and more. 

Qualifying for a jumbo mortgage can be daunting, but if your dream home is an expensive property and you have the means to qualify for you, it can be a great choice!

Need Personalized Mortgage Help? Contact Patriot Home Mortgage

We hope that this blog post helped clarify what a jumbo mortgage is and the qualifications necessary to get one! However, the home buying process is different for everyone, and it’s important to consult a mortgage expert to understand all of your options. We’d be more than happy to talk with you about your mortgage financing options and help you create a home buying budget. Contact us in St. George, Utah or Mesquite, Nevada today. We provide services for conventional mortgages, VA loans, USDA loans, jumbo loans, reverse mortgages, and more. 


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