Financial tools are readily available for your personal use, regardless of need. Loans exist to help you fund your education or finance your dream home, and most people in need of bigger investments opt for jumbo loans.
These are essentially lending options that allow you to take out mortgages for higher-priced properties, offered by countless mortgage lenders. They exceed the loan sizes provided by Freddie Mac and Fannie Mae, which are government-sponsored enterprises.
Unfortunately, most people remain in the dark about jumbo loans. The choice of investing in one depends on where you wish to live, and how high you’re willing to pay for your home. For areas where average prices fall beyond the national median, jumbo loans will be your best bet as a homeowner.
Thankfully, jumbo loans are designed to be extremely flexible, especially in terms of the properties you wish to purchase. To learn more about jumbo loans, we’ve gathered this quick and easy guide for you:
The Loan Requirements
Unlike other traditional loans, jumbo loans require borrowers to prepare additional requirements. Take note of the following items:
- Your credit score: A successful loan application always relies on your credit score, but jumbo loans require a higher number. Make sure your credit score is at least 700.
- The DTI ratio: If you’re looking to pursue a jumbo loan, make sure that your DTI is at its lowest. You’ll want it to fall under 43 percent for a better chance.
- Down payment: The minimum amount will depend on the lender you choose to work with, but can be higher than the traditional 20 percent.
The Jumbo Caveat: 2021 Limitations
As with all loans, jumbo loans also operate under certain limitations. These limits are set by the Federal Housing Finance Agency, which then oversees the government-sponsored enterprises of Freddie Mac and Fannie Mae.
Such limitations are important, as they help lenders increase the accessibility of loans to various borrowers. They empower lending institutions to sell loans to government-sponsored enterprises, thereby decreasing the risks should the borrower fail to repay. Given the huge amounts involved, the risks are always high for lenders.
These limitations vary per market and state. New changes have been introduced, and as of 2021, homeowners can now borrow up to $548,250 in most parts of the country. However, limits can go as high as $822,375, particularly in Hawaii and Alaska. These numbers only apply to single-family units, however, as multifamily unit limits operate under specific conditions.
The Bottom Line
Jumbo loans are essentially mortgage loans with higher amount limits, allowing individuals to loan beyond the conventional amounts. They’re used to purchase a variety of properties but will come with requirements based on the lender’s preferences and protocol. Down payments are also usually higher, and will depend on both the state and market.
The good news is that countless homeowners are now given the opportunity to loan accordingly, bringing them closer to their dream homes. If you’re planning to invest in a rather pricier home soon, jumbo loans are worth looking into. Remember to keep this guide in mind as you plan and strategize!
For the best mortgage brokers in Louisville, Loan Solutions Now has you covered. We have been financing homebuyer’s dream homes for years, and we offer you the same level of expertise and dedication. Let’s turn your plans into reality—reach out to us today.