What are Jumbo Loans in Real Estate?

What are Jumbo Loans in Real Estate?

In short, a jumbo loan is for properties that sell for higher than the conventional loan limit of the state and/or county. It is, however, much more complicated in the long run. California is a good example of how complicated it can get.

In CA, the conventional loan limits are differentiated by county rather than statewide. They are normally for high-end or luxury properties. However, some high-density areas with a huge demand from properties will see median home prices higher than the conventional limit.

Alameda County is a good example of this; with a loan limit just under one million dollars and a median home price of over one point one million. That does not mean that every home purchased in that area will be a jumbo loan, but it will likely see more of them than usual.

Is a Jumbo Loan Hard to Get?

It can be, as there are a lot of safeguards for these loans. Some of them existed prior to the banking crisis years ago, but many have been added since then. As an example, when buying real estate in Southern Highlands (or elsewhere) in order to get a jumbo loan, it is often necessary to have cash reserves that will cover a full year’s mortgage payments.

While the income/housing ratio is different with a jumbo loan, it still exists. Conventional loans typically require housing costs (mortgages plus utilities) be forty three percent of total income or better. Under the right circumstances, this ratio may not be as important for jumbo loans.

There is also the benefit of not needing a guarantee fee for a jumbo loan. In California, a g-fee is required for conventional loans but not required for jumbo loans. This may be because of the other safeguards mentioned above.

Getting a jumbo loan is still unlikely to be a walk in the park, however. The property appraisals are much more intense for this sort of loan. 

Jumbo Loan Mortgage Requirements

For those who require a jumbo loan, there are still more necessities. Credit scores are important for any sort of loan. For a jumbo loan, the credit score typically has to be exceptional rather than standard. A score of seven hundred twenty or higher may be needed to secure the loan.

Down payments are different as well. The borrower can expect a minimum of twenty percent down payment, with some lenders going as high as thirty percent. This is on top of the one year of payments in reserve. Conventional loan interest rates usually follow the lead of the Fed, but jumbo loan rates tend to be higher. Closing costs of the loan are also higher.

Is a Jumbo Loan Right For Me?

It is best to do some research on the housing market in your area before considering a jumbo loan. It is also wise to talk to an experienced real estate agent or mortgage professional. While it may be the only way to finance your dream home, it may not be right for you.

*Disclaimer: This material is provided for information purposes only and is not to be construed as investment or tax advice. Readers are strongly advised to consult with their professional advisors regarding the information herein.

Related Articles

Post a Comment