A jumbo loan is a type of mortgage loan that allows borrowers who have a higher credit score and a lower debt-to-income ratio buy a luxury or high-priced home. In other words, a jumbo loan is an alternative that strays away from Fannie Mae and Freddie Mac home loans and instead allows qualifying borrowers to take advantage of a higher figure funding option to buy a luxury home or to use the loan amount for refinancing that far exceeds the limits of a traditional, conventional loan amount. Jumbo loan rates are always going to be higher than conventional rates because the lender fronts a greater risk. Diditan Financial helps borrowers explore the option of a jumbo loan, and we work hard to make sure you get the best possible rate with the most desirable terms. If you are leaning towards a jumbo loan or are at a stage where you are ready to learn more, it is best you have a financial experts guide you through the process. In 2008 when the bubble burst the jumbo loan became practically extinct. Today, they are being reintroduced in a market where lenders are smart to be very picky in terms of who to grant this loan species to, as they are taking on greater risk and therefore the rates are higher than those seen in traditional mortgages.
Why are Jumbo Loan Rates Higher?
Jumbo loan rates are higher because lenders take on tremendous risk, even if the borrower has good credit. First, borrowers who seek a jumbo loan are in the market to buy luxury homes, not your run-of-the-mill 2000 sf ranch house in the valley. Therefore they are borrowing on property in a niche market. In the event the borrower defaults on the loan, it is highly likely the lender will not be able to get full asking price for the home. Also, luxury homes exclude mainstream buyers which limits the market for lenders to recoup their funds. This is why rates are significantly higher than compared to a conventional home loan, and why qualifying for a jumbo loan is generally harder than getting a conventional loan. However, Diditan Financial has more than a decade of experience helping multiple borrower types secure their ideal loan, the jumbo variety included.
Who Qualifies for a Jumbo Loan?
If you have a high credit score, a sizable down payment (or enough equity built up in your current home), and the details of your credit report showcase favorably to lenders, you have a much better chance of qualifying for a jumbo loan. Although criteria can vary, the following is fairly standard to have in place when approaching a lender for a jumbo loan:
- Credit score of 720 or higher
- The ability to put down at least 20 percent
- Well documented proof of income
- Your mortgage payment may not exceed 38 percent of your gross monthly earning
- No history of a foreclosure or late mortgage payments
Your credit score is looked at through various different lenses, according to the individual lender’s own criteria. For example, some may require a credit score of 750 while others are content with the standard 720. It is rare for a credit score under 720 to fit into any jumbo loan framework, though not unheard of. Another thing lenders consider is the size of your down payment. If you are able to put down more than 20 percent it will certainly be favorable, and the more you put down, the lower your rate will be. In fact, Diditan Financial has even worked with borrowers to help devise a loan in which a larger amount is put down and the rates are very close to the national standard one would pay in a conventional mortgage. A lender can also use his own discretion in looking at the types of delinquencies reported on your credit score. For example, he may not care if you were late making payments on your Visa credit card, but making late mortgage payments could raise red flags. Also, if your credit report shows that you have unpaid medical bills or an open dispute with your mobile phone provider, they may not care as opposed to unpaid HOA fees. When you partner with Diditan Financial we will go through your credit with a fine-tooth comb and use it to leverage the best rates and terms for a jumbo loan that can secure your family dream home.
Is a Balloon Payment Good or Bad?
When borrowers hear “balloon payment” they first tend to recoil and feel much resistance. Balloon payments have taken on the semblance of a “Hester Prynne” reputation in the world of mortgages and home loans. While some look at a balloon payment as a thing baring a “scarlet B letter of shame”, it can actually be an ideal component in the jumbo loan that makes luxury home ownership possible for certain borrowers. First of all, a balloon payment allows the borrower to apply for greater funding amounts than what traditional loans offer because (a) it is granted to those whose financial portfolio proves they can cover the cost and therefore successfully pay back the loan, and (b) it gives the lender some assurance that his investment is protected. Balloon payments get their stigma from 2008 when predatory loans went after buyers who couldn’t afford the home, and used complicated terminology to mask the balloon payment terms and conditions. However, in today’s market lenders are extremely cautious when issuing balloon payments to buyers, and this aspect of the jumbo loan (if applicable, as not all but most jumbo loans have them) is clearly explained to the borrower and his finances must indicate that he has the high probability of being able to pay it off. A balloon payment is only bad if the borrower has no way of paying the balance off at the due date, and quite frankly, it is a product that most buyers with little equity and challenged credit scores don’t even shop. Therefore, for the appropriate buyer, a balloon payment is a vital part to the jumbo loan that helps borrowers with good credit and substantial equity get their ideal home.
Jumbo Loan Interest Rates
As a general rule jumbo loans have higher interest rates due to the fact the loan amount is well above conventional limits requiring financing by private lenders that aren’t backed by the government. One of the biggest misconceptions is that people with bad credit turn to jumbo loans, and back in the mid-to-late 2000s, people with bad credit did flock to them and were approved by predatory lenders. Today, however, jumbo loans are reserved for people with good credit as a way to afford luxury homes that require larger loans. Depending on your credit score and report, you can expect to pay three to five percent higher. However, as of 2016 the spread between a jumbo mortgage and a conforming mortgage are coming closer. Additionally, if you are able to come up with a larger down payment, you can even get approved for a rate that is on par with conventional mortgage rates. The key is finding a good company like Diditan Financial who can navigate the seas of jumbo mortgages and find you the best solution for your money and credit portfolio.
Jumbo Loan Limits
Depending on what part of the country you are in and what type of property you are borrowing a loan for, the limit you can borrow is set. Keep in mind that jumbo mortgages can not be sold to Fannie Mae or Freddie Mac, so any outside investor is likely to buy loans in securitized bundles. For the most part lenders simply keep them on their books, or on secondary markets.
The borrowing limitations for within the contiguous US (including Washington D.C. and Puerto Rico) are as follows:
- 1-unit property – $417,000
- 2-unit property – $533,850
- 3-unit property – $645,300
- 4-unit property – $801,950
For loan limits in Hawaii, Alaska, Guam, and the U.S. Virgin Islands the limits are:
- 1-unit property – $625,500
- 2-unit property – $800,775
- 3-unit property – $967,950
- 4-unit property – $1,202,925
What is a Super Jumbo Loan?
A super jumbo loan can light up the dollar signs in any loan officer’s eyes, but these are rare. The definition of a super jumbo loan is heavily argued across the industry, but most agree that it defines a loan amount within the contiguous US ranging from $650,000 up to $20 million. However, there are banks that set their own limits that may be slightly higher or lower than 20. For example, OneWest Bank sets their borrowing limit at $15 million for a super jumbo loan. A super jumbo loan can be a fixed, adjustable, or interest-only mortgage.
Why Would Someone Want a Super Jumbo Loan?
Super jumbo loans are taken out by borrowers with substantial equity for many reasons that include:
- Home equity financing
- Financing a luxury primary residence
- Financing a vacation home or second residence
- Financing investment properties
Diditan Financial is comprised of skilled underwriters who are well versed in the most complex financial situations. If you have a fluctuating income or are self-employed, our specialists can help you with any transaction as easily as if we were working on a 30-year fixed conventional mortgage loan. We are experts at understanding all local markets, especially the luxury home niche. We are dedicated to offering the best personal service in the industry.