Jumbo mortgage loans are non-conforming loans that exceed the maximum amount set as conventional loan limit. The government sponsored enterprises (GSE), Fannie Mae and Freddie Mac, set the limits on the maximum loan amount for any “conforming” loan. To date, the maximum loan amount for conforming is $424,100. Any loan that exceeds this amount is considered a Non-conforming jumbo loan. For this year, 2016, the breakdown of jumbo loan limits are as follows according to the Federal Housing Finance Agency (FHFA):
- 2,916 counties remain at $424,100;
- 108 counties have loan limits of $636,150. These counties are considered the highest-cost housing market areas. They include New York City, San Francisco, and Los Angeles;
- 115 counties are between $424,100 to $636,150. These areas are considered having a higher than normal prices but not as high as the above-mentioned counties;
A jumbo purchase loan or a jumbo mortgage is looked at differently compared to their conventional counterpart. Credit score requirement is typically higher; a minimum of 680 middle credit score is required. The typical jumbo mortgage borrower has a middle FICO score of 740 and above. It’s not common for lenders to see a borrower’s credit score in the upper 700’s to low-mid 800’s when originating a jumbo loan.
There is also the loan-to-value requirement. This is usually looked on an individual basis since a borrower’s situation for jumbo loans varies from one borrower to the next. At a minimum, a jumbo loan borrower is required to come up with 10% down payment. Typically, 20% is required to qualify for a jumbo purchase loan. However, some borrowers will be required to come up with 25% – 30% down payment depending upon their situation and type of property being purchased.
The asset reserve requirement for jumbo loans is very different from their conventional mortgage counterpart. An asset reserve is defined in terms of the monthly Principal, Interest, Taxes, and Insurance (PITI) payment. One month of the reserve is equal to one month of PITI payment. This asset reserve requirement for jumbo loans varies from a minimum of 6 months to a couple of years’ worth of reserves, depending on how big the loan amount is and the borrower’s particular situation. It is not uncommon for a lender to require a borrower 12 – 24 months in asset reserve, but 6 months of the reserve is the common rule of thumb. A borrower is required to document all asset reserves and the more they can show in reserve, the better their chances of getting approved for a jumbo purchase loan.
Interest rates for jumbo purchase loans are almost always an adjustable rate mortgage (ARM). Fixed rate jumbos are relatively rare and higher than conventional loans. Borrowers on jumbo loans generally get a 5, 7 or 10-year ARM, then sell the house before the maturity of the loan. A large number of jumbo purchase loan borrowers don’t plan on staying in the house for a long period of time, hence, opting for an adjustable rate mortgage loan.
Jumbo Purchase Loan Summary:
- Usually, requires a larger down payment;
- Requires a lower debt-to-income (DTI) ratios;
- Higher credit scores;
- More reserves (emergency funds) in their portfolio;
- Higher rate compared to conforming loans.
AMCAP Mortgage offers jumbo purchase loans with attractive rates at a low cost to the borrower. Our jumbo purchase loans in Texas is very competitive and easier to qualify for compared to big banks. While other lenders are falling short on jumbo loans, we open our door to lending jumbo loans.
For additional information about Non-conforming, Jumbo loans, please contact our Home Loan Specialists at 281-860-2533.