What Is a Jumbo Loan, and How Do You Qualify for One?

If you’re in the market for a new home and you don’t want to compromise on space, you may be considering a jumbo loan. A jumbo loan can be a good option if you’re looking to finance a high-priced home. However, there are a few things you should know before you apply for a jumbo loan.

Here’s a closer look at what jumbo loans are and how to qualify for one.

What Is a Jumbo Loan

A jumbo loan is a mortgage loan that exceeds the conforming loan limit set by the Federal Housing Finance Agency (FHFA). In 2022, the conforming loan limit is $647,200 for a single-family home. However, in high-cost areas such as in Hawaii and Alaska, the loan limit for conventional loans can be as high as $970,800.

Jumbo loans are designed for borrowers who need a larger loan than what is available from a conventional lender. These loans are typically used to finance luxury homes, investment properties, or to consolidate multiple mortgages into one loan.

How Are Conforming Loan Rates Different From Jumbo Loan Rates

When it comes to mortgage loans, there are two main types of loans available — conforming loans and jumbo loans. So, what’s the difference between the two, and how do conforming loan rates differ from jumbo loan rates?

Conforming loans meet the guidelines set by Fannie Mae and Freddie Mac, the government-sponsored enterprises (GSEs) that purchase loans from lenders. These guidelines include maximum loan amounts, minimum credit score requirements, and maximum debt-to-income ratios.

Jumbo loans, as mentioned above, exceed the loan limit set by the FHFA, while conforming loans fall within that limit. And because jumbo loans don’t conform to the guidelines set by Fannie Mae and Freddie Mac, they typically come with higher interest rates than conforming loans. That’s because jumbo loans are seen as riskier by lenders since they’re not backed by the GSEs.

Also, jumbo loan borrowers are viewed as higher risk because they tend to have higher debt-to-income ratios and lower credit scores than conforming loan borrowers. As a result, jumbo loan rates are typically 0.5% to 1.0% higher than conforming loan rates.

If you are thinking of taking out a mortgage loan, it’s important to compare rates from multiple lenders to see which one offers you the best deal. Be sure to compare both jumbo and conforming loan rates to get an idea of all your options.

How to Qualify for a Jumbo Loan

To qualify for a jumbo loan, you’ll need a strong credit score, a healthy debt-to-income ratio and a down payment of at least 20%. You’ll also need to prove that you have the financial resources to make the monthly mortgage payments.

Here’s a closer look at each of these qualifications for a jumbo loan:

• Credit Score: You’ll need a credit score of at least 700 to qualify for a jumbo loan. If you’re looking for a lower interest rate, you may need a score of 740 or higher.
• Debt-to-Income Ratio: Your monthly debt payments, including your mortgage payment, should be no more than 45% of your monthly income. To calculate your debt-to-income ratio, divide your monthly debt payments by your monthly income.
• Down Payment: You’ll need a down payment of at least 20% of the home’s purchase price. If you’re unable to make a 20% down payment, you may be able to qualify for a jumbo loan with a lower down payment, but you’ll likely have to pay for private mortgage insurance (PMI).
• Financial Resources: Jumbo loans are typically reserved for borrowers with strong financial resources.

Conclusion

If you’re considering a jumbo loan, it’s important to work with a lender that has experience in this area. Jumbo loans are not like traditional mortgages, and there are a number of things that you’ll need to take into consideration. With the help of a knowledgeable lender, you can get the financing you need to purchase your dream home.

Get In Touch With Your Trusted Mortgage Specialist Today!

If you’re in the market for a jumbo loan, you’ll want to work with a mortgage broker who understands the unique challenges that come with this type of financing. At MidAmerica Bancorp, Inc., we have the experience and expertise you need to get the best possible loan for your situation. We understand that every borrower is different, and we’ll work with you to find a loan that meets your specific needs. Whether you’re looking for a fixed-rate loan or an adjustable-rate loan, we’ll help you find the right fit.

Let us help you find a loan that fits your needs. We are licensed in the states of Illinois, Indiana, Florida, Michigan or Wisconsin. Contact us today at (708) 237-4050 to get started.