Applying for a mortgage can be a painstaking task as you gather all of your necessary documents, weigh out financing options and plan out your home purchase. The thought of a mortgage can get you a bit nervous in general but hearing the term ”jumbo mortgage” can sound even scarier. What exactly is a jumbo mortgage? Let’s discuss what they are and who they are for.
Definition of jumbo mortgage
In simple terms a jumbo mortgage is a loan that exceeds the “conforming amount” set by the Federal Housing Financing Agency (FHFA). Conforming means that the loan meets the requirements for purchase by a government backed entity such as Fannie Mae or Freddie Mac. Jumbo loans can have preferred interest rates but can also have higher risks for the lender which in turn means they may have requirements that may be more strict for the borrower.
Jumbo mortgage conforming limits
While this may change year to year, the conforming limit for a single-family home in 2021 is $548,250. However, this number may be adjusted in select areas where housing prices are far higher than the average in the country. FHFA sets these baseline amounts each year by evaluating average home values in the United States. New loan limits are always released by year’s end for the upcoming year.
How to qualify for jumbo mortgage
The typical applicant may qualify for a jumbo loan but just with slightly different or perhaps more strict criteria. For one, while a good credit score is important for any loan, jumbo loans are usually granted to those with a score of 700 or more. Also, a debt to income ratio of 36% or so is also a usual guideline. In the end while you may find different deals in different areas you should plan on almost always putting at least 20% down unless you may qualify for a Veterans Affairs (VA) loan.
Loan rates and benefits
While you may think that the higher the risk, the higher the rate but that is not the case. Generally speaking jumbo mortgage rates can be found at slightly lower levels than your average, standard 30-year fixed rate mortgage. The other good thing is that the mortgage interest deduction still applies. Therefore, anyone looking to take advantage of this benefit on their taxes can do so. Check in with your accountant on just how much you can deduct depending on your status and how you file each year. Amounts will vary if you are single, married and filing separately or jointly.