Fannie Mae and Freddie Mac are the two government sponsored entities who regulate the conventional conforming loan industry, and therefore determine what the price limits of conventional mortgages. That doesn't mean that a borrower can't request a sum greater than this, it just means they will have to use a jumbo loan.
In 2021, the current conforming loan limit is $548,250 with a 150% increase in high-cost areas, which equals to $822,375 .
Due to jumbo loans being riskier for lenders, typically a large down payment is involved with securing a jumbo loan, as luxury properties may take longer for a lender to sell at full price if their loan were to default.
Typically, a jumbo loan will come with a higher interest rate than a conforming loan, but that isn't always the case. Rates may vary based on lender, specific loan program and more.
Depending on the lender, you may be required to have a FICO score anywhere between 700-720, generally speaking.
Jumbo loans can be used with primary residences, second homes and investment properties, as well as for condos, homes, duplexes and more. In fact, there are no federal restrictions on what kind of property can be purchased with a jumbo loan.
When going with a VA jumbo loan, your property will still have to meet the specific VA qualifications as well.
Down payments do vary from lender to lender and program to program, but generally speaking, be prepared to put down 20% of the purchase price of your property when using a jumbo loan.
In regards to VA jumbo loans, if your credit score is below 740, you will be required to put down a 5% minimum down payment.
In Some Instances, Lenders Will Require Cash Reserves:
Would you let someone borrow money who didn't have the ability to make consistent payments until the loan was repaid in full? Of course you wouldn't! While every lender has different requirements and conditions with their jumbo programs, ensuring a borrower has up to 12 months' worth of expenses in their reserves is not uncommon in the slightest. However, some lenders may consider up to 70% of a retirement account, and depending on the situation and the lender, business and gift funds may also be considered.
Higher Closing Costs:
With a conventional mortgage, closing costs generally range between 3 and 6 percent of your total home value. With a jumbo loan, this most likely will be significantly higher, but how much will depend on many factors, including the lender you get your loan from.
Your Income Must Be Consistent:
Like I said earlier, would you want to loan someone money who you weren't sure was going to be in a position to pay you back. Obviously, the more money one is borrowing, the more true that previous statement becomes. While the saying "2 + 2 + 2 will get you through" is true for a conventional mortgage, you may need a lot more than your last two months bank statements, last two tax returns and last two paystubs to be approved for a jumbo loan.
Credit History Is Twice As Important:
If you're thinking of a jumbo loan, I hope you have both good credit and are free from any bankruptcies and foreclosures. If there's anything in your past that may give a lender a second thought about your ability to repay, you may have a difficult time getting approved for a jumbo.
The VA Funding Fee:
If you happen to be getting a jumbo loan through a VA program, the VA funding fee will be larger that in a conventional loan. How much of an increase is contiginent on a few factors, such as your down payment, if this is your first VA loan or not, but generally the funding fee is somewhere in the 1.4% to the 3.6% of the loan amount range. Seller concessions may lighten the fees of buyers however.
In business for over 20 years, Coastal Funding Corporation is known for our determination to acquire as many lending partners as possible. We understand not every loan program fits every person, and on top of that, every lender has their own specific requirements, meaning the more options we have at our disposal to match you up with, the more likely you are to find not just a loan, but the right loan.
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