Now that the real estate market is improving the “Jumbo”  mortgages are back and starting to loosen its restrictions a bit.  A Jumbo mortgage is any amount above conventional conforming loan limits.  In monetary terms, any loan over $417,000. These limits are set by the Office of Federal Housing Enterprise Oversight (OFHEO) and are set annually.

Like todays conforming and FHA mortgages, jumbo mortgages are actually
widely available. What’s different is that jumbo loans are often expensive. The reason jumbo loans are expensive is very simple the government does not back jumbo loans. After the bubble burst in 2007, jumbo loans were almost non-existent.

In early-2009, Congress passed the 2009 American Recovery and Reinvestment Act. The law increased Conforming mortgage loan limits from $417,000 to $625,500 in high-cost parts of the country including the aforementioned Los Angeles and New York City.  Most places the limit it $417,000.  Check your states jumbo loan limit to know what it is .

Who Qualifies – Guidelines

As in any loan there are strict guidelines “Qualifications”  that the buyer has to meet.  In a jumbo mortgage they are higher and riskier for lending institutions.

General Guidelines

• Must have at least a 680 or better.

• Down payment will be higher – Depending on lender or program guidelines

• Credit score of: 660 – 25% or more downpayment – 680 – 20% downpayment – 740 – 10% dowpayment

• Jumbo rates have typically .5% – 1.0% higher interest rate

• 6-12 month cash reserves

• The higher the loan value the more money they will want buyer to put down.

• Any down payment less than 20% will have mortgage insurance payments and those could be very high depending on the size of loan.

• Must be 43% or lower of borrowers total income

There are many variations of the Jumbo loans.  Each lender has their investors with Jumbo loan criteria.  The general guidelines mostly apply but there might be specific criteria to each investor.  For example I have a lender (Kennedy Financial) that has a great jumbo loan program.

 Kennedy Financial Jumbo Loan Qualifications

• Loan amounts to $2,000,000

• Loan amounts to $750,000 at 90% LTV

• No mortgage insurance on any of our products -HUGE SAVINGS

• Second mortgages to 85% CLTV

• Vacation homes to $1,000,000

• No adjustment to rate for loan size or property type

• Short sale or foreclosure purchase available

• We will allow a 90% CLTV with another lenders simultaneous second mortgage

• 100% gift funds allowed for down payment on loans ≤ 85% LTV

Strategies to Avoid Jumbo Loans

• Increasing your down payment– This is the easiest option – where I makes the most sense if you are close to the conforming conventional limit. The limit in Georgia is $417,000. If you are close to that it would make sense to put more down to avoid a Jumbo loan.

• Get two mortgages– This would require the first mortgage to be under $417,000 and then a small second. The second mortgage typically has a higher interest rate. This would not work on all jumbo loan scenarios.

• Use an ARM– there is risk in this and you would typically have a higher down payment. The risk is the rate increasing. If you move every few years this might not be a bad option, but I use this as the last resort.

Overall if you are looking at a luxury home that does not fit the conforming conventional loan amount of $417,000 or less.  There are many options for Jumbo loans with different down payment, interest rates, criteria. I  suggest you shop around and find the best loan that fits your needs.  If you need help you can always contact me –  I would be glad to sit down and talk about options and find the best loan program that fits your needs.