What is a Jumbo Loan?
Jumbo Loans exceed the maximum loan amounts established by Fannie Mae and Freddie Mac conventional loan limits. Rates on jumbo loans are typically higher than conforming loans. Jumbo Loans are typically used to buy more expensive homes and high-end custom construction homes.
Loan limits are established by county, so loans may be considered "jumbo loans" at different loan amounts in different areas.
Jumbo mortgage financing allows borrowers to obtain more expensive housing and financing at favorable rates and terms. Although the loan process for jumbo loans is very similar to that of conventional and government lending, jumbo mortgage loans often have slightly stricter guidelines, such as a larger down payment, higher FICO scores, or reserve requirements.
Jumbo Mortgage FAQ's
Are Jumbo Mortgage Rates Higher?
Jumbo Mortgage rates can vary from conventional rates due to a variety of factors. For one, lenders carry more risk with jumbo loans because the potential losses are higher in the event of foreclosure. Many times, though, rates will be close to or sometimes even better than conventional loans. While common sense says jumbo loans may carry more risk since the dollar amount is higher, lenders often implement tighter underwriting standards and additional layers of risk prevention on jumbo products, offsetting risk by only lending to highly qualified borrowers.
Do Jumbo Mortgages Require Reserves?
Jumbo mortgage loans often require "reserves" from investors - while the definition of reserves varies slightly from investor to investor, mortgage reserves are generally considered a formula where 1 month of reserves equals 1 month of property expenses - typically including mortgage principal and interest, property taxes, home owners insurance, and sometimes HOA payments as well.
To use simple math to illustrate reserves, if someone is buying a home with a total mortgage payment of $8000/month that includes all home-related expenses (taxes, insurance), then 6 months of reserves would equate to $48,000.
Investors also differ on what they accept as adequate sources of reserves - some allow for all types of retirment funds, while some will use a percentage of retirement funds (60-70% of a 401K, for example). Nearly all investors accept liquid assets as adequate reserves (checking, savings accounts, etc)
How Much Can I Borrow?
Jumbo loan amounts typically start $1 over the local conventional loan limits, and beyond that, many different investors cap their loan limits at much different levels and LTVs (% of down payment, or how much equity is in the property).
At MasonMac, we have extremely competitive jumbo mortgage products. Our products have competitive rates and features, and we have many investors to fund loans up to $10 Million.