What is a Jumbo Loan?

Cardinal Financial December 16, 2020 | 4 min read
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If you’re looking into luxury homes or moving into a high-priced area, a jumbo loan could be the perfect fit.

It’s all in the name.

When you hear the word jumbo, you automatically expect a bigger version of the word that follows it. There’s jumbo shrimp, jumbo jets, jumbo athletes. A jumbo loan is no different. At its simplest, it’s a bigger version of a regular loan, but officially, a jumbo loan is a mortgage for an amount that exceeds the conforming loan limits set by the Federal Housing Finance Agency (FHFA). So, if your house hunt includes the words mansion or luxury, or if you’re looking to plant roots in a high-price area like Orange County, California, then you may need a jumbo loan. Fortunately, we’ve got the answers to all your jumbo loan questions right here in this blog. Let’s get into it.

At its simplest, it’s a bigger version of a regular loan, but officially, a jumbo loan is a mortgage for an amount that exceeds the conforming loan limits set by the Federal Housing Finance Agency (FHFA).

What Does My Credit Score Need to Be to Buy a House?

Jumbo Loan Limits

Jumbo loans are considered non-conforming loans because they exceed conventional loan limits. This means they cannot be secured by government-sponsored enterprises like Fannie Mae or Freddie Mac, making jumbo mortgages riskier for lenders.

So, what are conforming loan limits?

Great question. In 2021, the conventional loan limit is $548,250 for a single-family unit in most parts of the United States. However, the limit is higher in places where housing is more expensive, like some parts of California and major metropolitan areas such as Washington D.C. Alaska and Hawaii also have a higher limit for 2021 ($822,375).
Long story short: if you’re buying a home with a steep price tag, and you don’t want to come up with a larger down payment, you’ll likely need a jumbo loan.

What are the benefits of jumbo loans?

Apart from giving you more purchasing power, jumbo loans allow borrowers to finance more of the home’s cost rather than tying up cash, which can be helpful as a part of an overall investment plan. They also come with competitive interest rates and plenty of rate/term flexibility, which gives borrowers a lot of leeway in how they want to build their loan. (*Cardinal Financial is currently offering a 30-year fixed-rate term on jumbo loans. Contact us to learn more!)

How do I qualify for a jumbo loan?

Since you’re requesting a larger loan, jumbo loans are usually accompanied by higher underwriting standards. Like we said earlier, these loans aren’t backed by Fannie Mae or Freddie Mac. Jumbo mortgages are riskier to lenders, so naturally, they have to be more careful about who they approve. The most common hurdles that borrowers have to clear to get jumbo loan approval include:

  • A higher credit score
  • A larger down payment
  • More cash reserves along with a lower debt-to-income ratio
  • Lenders may also require an extra home appraisal and additional fees as well due to extra steps in the loan process.

Requirements vary by lender though, so some places may have more relaxed standards than others. That’s why it’s important to do your research before you commit to a lender.

What’s next?

If you think a jumbo loan could be for you, we’d love to help you get started with the process! Contact us today to learn how we can help you make your big #housegoals a reality.

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