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What Are Jumbo Loans?
Jumbo loans are home loans that exceed the maximum conforming loan limit of $726,200. To be within the conforming loan limit is required to qualify for conventional loans. Any loans exceeding the 2022 conforming loan limit of $726,200 set by the FHFA are referred to as non-conforming loans or jumbo loans.
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Jumbo loans, also known as jumbo mortgages, are types of mortgage loans that exceed the conforming loan limits set by government-sponsored enterprises (GSEs) like Fannie Mae and Freddie Mac. Here are some key points about jumbo loans:
- Loan Limits: Any mortgage amount above the conforming loan limit for a given area is considered a jumbo loan. In 2023, the conforming limit is $726,200 for a single-family home in most counties.
- Higher Loan Amounts: Jumbo loans can go up to multiple millions of dollars for expensive properties, with no maximum limit set by GSEs.
- Stricter Qualifying Requirements: Since jumbo loans aren’t backed by Fannie Mae or Freddie Mac, lenders often have tighter credit score, income, asset, and down payment requirements to offset the higher risk.
- Higher Credit Scores: Most jumbo loan lenders require a credit score of 700 or higher, though some may go as low as 680 for the highest-qualified borrowers.
- Larger Down Payments: Typically, jumbo loans require a minimum 20% down payment, though some programs may allow 10-15% down for very strong borrowers.
- Asset Reserves: Lenders may require borrowers to have hefty cash reserves, such as 6-12 months’ worth of mortgage payments.
- Adjustable Rates Common: While fixed-rate jumbo loans exist, many are adjustable-rate mortgages (ARMs) that can make the overall payments more affordable.
- Higher Interest Rates: Due to the larger loan amounts and lack of GSE backing, jumbo loan interest rates are usually higher than conforming rates.
- Approval Process: The underwriting process for jumbo loans is often more rigorous, requiring extensive documentation of income, assets, and cash reserves.
- Loan Programs: Some major jumbo programs include Jumbo Agency, Portfolio Jumbo, Super Jumbo, and Non-QM Jumbo loans.
Jumbo loans provide a path to homeownership for borrowers looking to finance higher-end properties that exceed the conventional conforming limits. However, the increased requirements make them better suited for borrowers with excellent credit, substantial income, assets, and down payments.