The Basic Differences in What Makes a Home Loan, a Jumbo Loan
Applying for a mortgage can be a hectic time as you collect all of your necessary documents, compare financing options, and plan out your home purchase. Thinking about a mortgage can make you a bit nervous in general but hearing the term ”jumbo mortgage” can sound even scarier. So what exactly is a jumbo mortgage? Here are some more details about what makes a loan jumbo.
Definition of Jumbo Mortgage
In simple terms, a jumbo mortgage is a loan that exceeds the conforming amount that is established by the Federal Housing Financing Agency (FHFA). Conforming means that the loan meets the requirements for purchase by a government-backed entity such as Fannie Mae or Freddie Mac. Jumbo loans can have attractive interest rates but can also have higher risks for the lender which means they may have tougher requirements for the borrower.
Jumbo Mortgage Conforming Limits
This is subject to change year to year, but the conforming limit for a single-family home in 2021 is $548,250. Bear in mind this number may be adjusted in select areas where housing prices are much higher than the average. FHFA sets these baseline amounts every year by evaluating average home values in the United States. New loan limits are shared by year’s end for the coming year.
How to Qualify for a Jumbo Mortgage
The average person may qualify for a jumbo loan but with slightly different and more rigid criteria. First, while a good credit score is important for any loan, jumbo loans are typically granted to those with a score of 700 or more. Also, a debt-to-income ratio of 36% or so is also a usual guideline. Finally, while you may find different deals in different areas you should plan on putting at least 20% down unless you may qualify for a Veterans Affairs (VA) loan.
Loan Rates and Benefits
While you may think higher risk, higher rate that is actually not the case. Generally speaking, jumbo mortgage rates are often a little bit lower than your average, standard 30-year fixed-rate mortgage. The other good thing is that the mortgage interest deduction still applies. Anyone looking to take advantage of this benefit on their taxes may do so but just consult with your accountant on just how much you can deduct depending on your status and how you file. The amounts will change if you are single, married, and filing separately or jointly.