What makes a loan "jumbo" and is this the right kind of mortgage for you?
When considering applying for a mortgage to buy or refinance a home, it's easy to be dazzled or confused by the amount of options on the market, with their own terminology and definitions. For instance, potential borrowers may be wondering what a "jumbo loan" entails. The name seems to imply that this is a bigger loan than usual, but is that all it means? The following questions and answers should clear things up, and make home loan decisions clearer.
What makes a loan "jumbo"?
Jumbo loans are mortgages issued for dollar amounts higher than what the Federal Housing Finance Agency will buy from lenders. As the Consumer Financial Protection Bureau notes, this usually means loans greater than $417,000. In some locations where home prices are quite high, however, jumbo loans can start at as high a minimum as $625,000.
What are rates like for jumbo loans?
According to the CFPB, it's normal for jumbo loans to fall into the "higher-priced" category, meaning their annual percentage rates are higher than the Average Prime Offer Rate mortgage benchmark. A jumbo loan with an APR 2.5 percent or more over the APOR is considered higher-priced, and may require additional precautions from lenders.
Are jumbo loans fixed-rate or adjustable-rate mortgages?
Jumbo loans are available as both fixed- and adjustable-rate mortgages. This means individuals who want to lock in their rates and get consistent payments can seek fixed-rate jumbo loans, while those planning on selling sooner, or who anticipate income increases, can apply for ARMs.
What is the maximum amount of a jumbo loan?
Since jumbo loans are defined by their minimum value, it's natural for potential homeowners to ask what the ceiling for these mortgages is. The maximum value depends on the lender and the borrower. For instance, our Jumbo Series loans go as high as $2.5 million dollars for individuals with great credit scores purchasing primary residences.
Are jumbo loans only available as qualified mortgages?
Borrowers looking for terms that go beyond the normal boundaries of qualified mortgages, or who don't fit the criteria for any reason, may wonder if they're eligible for jumbo mortgages. Are qualified mortgages the only kinds of jumbo loans? The answer is no, as there are plenty of other options on the market. Numerous lenders offer non-QM versions of jumbo loans for high-value borrowers seeking alternative mortgages.
What are some specialized jumbo loans?
Some of the exciting non-QM jumbo loans on the market include our Dream Big Jumbo program. These loans can go as high as $3 million for those who aim to purchase primary homes, and up to $2.5 million for second-home buyers. Cash-out refinancing can reach $2 million and borrowers buying investment properties can apply for up to $1 million. This loan type isn't just about size - it also allows convenient features such as the use of gift funds for down payments and co-borrowing by non-occupants.
Our High Balance Extra loan program is designed for borrowers who want to take out convenient loans that exceed conforming or high-balance loan limits from the federal agencies. These loans are 30-year fixed-rate mortgages that allow up to 90 percent loan-to-value amounts without mortgage insurance and top out at $750,000.