Jumbo loans also known as nonconforming loans are loans in which the sizes are too large to be considered deliverable directly to Fannie Mae and Freddie Mac. Each year, the Federal housing finance agency which controls Fannie Mae and Freddie Mac adjusts the conforming loan limit size per state on a county by county basis in the United States. These county loan limits, are also known as the conforming loan limits which are in essence the biggest loan allowed in that particular county that will be considered deliverable to Fannie Mae and Freddie Mac.
Characteristics of Jumbo Loans
- Any dollar amount over the maximum conforming high balance loan limit in any ‘said’ county
- Jumbo loans in Sonoma County, California, is any dollar amount over $520,950 meaning a loan amount $521,000 through upwards of $2 million is considered to be Jumbo
- Consumer must have a debt to income ratio of 43% (total proposed housing payment + any consumer liabilities and other mortgages and other properties divided into gross income= debt to income ratio/DTI)
- Emerging pool of investors in the secondary market creating extremely low rates for big mortgage loans
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Jumbo Loan Limits
- This varies per investor or rather per mortgage lender, for examples Sonoma County maximum jumbo loan limit is $2 million.
- Up to 80% financing is also available-20% equity is what it will take to purchase or refinance a home with a jumbo money
Mortgage Tip 1: if trying to qualify for a jumbo loan post foreclosure, waiting time is seven years, three years post short sale with 30% equity in the property.
Mortgage Tip 2: Jumbo adjustable-rate mortgages are extremely cheap. Why? Well the secondary mortgage market has an insatiable desire for jumbo loans especially adjustable-rate loans because of the faster recapture time. For example lender offers a consumer a 5/1 ARM at 3.375%-investor knows this consumer will probably refinance after five years so as to avoid adjustment period, and lender is repaid with interest in just 60 months or sooner.
Q &A on Jumbo Loans
Q: I heard you can get a jumbo loan rates lower than conforming loans offered by Fannie Mae and Freddie Mac. Is this true?
A: Yes, as Jumbo Loan investors are emerging as a result of the implementation of qualified mortgages mandating a 43% debt to income ratio, it is quite possible to secure thirty-year Jumbo Mortgage rates and/or see them lower than the loans bought by Fannie Mae and Freddie Mac. This phenomenon is driven by continual market appetite for bigger mortgages i.e. bigger returns and faster payoffs.
Q: Are two appraisals required when getting a jumbo loan?
A: Depends on the investor who you’re working with i.e. the mortgage company. The bigger the lender, the lower the likelihood of needing an extra appraisal. Rewind the clock couple of years, the jumbo mortgage market was hit with continual defaults as a result of the financial crisis, it’s only in the last few months Jumbo Loans have started to aggressively reemerge as a viable funding program for higher-end real estate transactions.
A: Are FHA loans considered to be jumbo loans? What are the FHA limits and how do they affect nonconforming loans?
Jumbo loans are not considered to be FHA loans. FHA loans are insured by the Federal Housing Administration and as a result consumer paid mortgage insurance is applicable. Jumbos do not have mortgage insurance with 20% equity/80% loan to value or more. As with all home loans, Jumbo Loans would contain PMI with less than 20% down and it will be up to your individual mortgage lender whom you’re applying in researching the program choices that exist.