Mortgage loan programs fall into various categories and classifications. They do so because underwriting a loan application to an existing set of guidelines allows the loan to be sold in the secondary markets. Selling loans allows lenders to replenish their credit lines which in turn allows them to make still more loans. For example, the most common type of mortgage loan today is the conventional conforming product. These loans are underwritten to guidelines established by mortgage giants Fannie Mae and Freddie Mac making up nearly two-thirds of all mortgage loans approved today. But the loans must follow these guidelines in order to be considered eligible for sale. One of the more important guidelines is the maximum loan amount which today in most parts of the country is $424,100. What if a loan application is for more than that? Then the loan falls into the jumbo category.
Jumbo loans are evaluated in much the same fashion as those approved using Fannie and Freddie guidelines. Borrowers must be able to show proof of income and employment, have enough funds available for a down payment, closing costs and some money left over which is referred to as “cash reserves.” Borrowers must be able to demonstrate affordability which is confirmed by comparing gross monthly income with monthly credit obligations.
And speaking of down payments, jumbo loan programs can accept a down payment for as little as 10% down yet with a down payment amount of anything less than 20% of the sales price and no subordinate financing, private mortgage insurance, or PMI will be required. For the most competitive rates on a jumbo loan often require a 25% down payment, however.
Interest rates on jumbo loans will be a bit higher compared to their conforming cousins. Not by much but you can still expect a 30 year fixed rate on a jumbo loan to be anywhere from 0.25% to 0.375% higher. Interest rates on jumbo loans are also affected by the amount of the down payment along with a higher credit score. Someone with a 10% down payment with a 740 credit score will be quoted a slightly higher interest rate compared to someone with 25% down and a 750 score, for example.
There are also jumbo loans that earn the name “super jumbo” mortgage due to the higher loan amounts. Standard jumbo loans are those above the $424,100 limit but those that fall into the super jumbo category might have a minimum loan amount of $2 million to $3 million.
Jumbo loan programs offer a similar range of choices as do conforming loans including fixed rate loans ranging in terms of 10 to 30 years along with hybrid options of 3/1, 5/1 and 7/1 programs. If you’re buying a higher end home and want to explore the types of financing options we have, contact me directly and let’s see what we can put together for you.