Across the country, numerous buyers need home loans that are above the normal or “typical” amount. Many homes from coast to coast are priced well above the limits for government-supported loan, which have benefits for both the lender and the borrower. Unless your bring a massive downpayment, these homes are generally ineligible for FHA loans, VA loan, and other forms of financing.
This means you will likely need a “jumbo loan,” a form of financing that allows you to borrow amounts well above the normal, or “conforming” limits. In many cases, jumbo loans allow for financing above and beyond $1 million.
Jumbo Loans: The Important Option for High-Value Property
What are Conforming Loans?
This article is about jumbo loans, but to understand these large mortgages, you need to understand conforming loans.
Conforming loans are mortgages that are within the limits set by the Federal Housing Finance Agency. (FHFA, not to be confused with the FHA.) These loans, have limits that are set on a county-by-county basis, starting with a base limit, the lowest maximum amount available. Currently, the base limit for a single-family home is $548,250. This is the limit that is applied to the vast majority of counties in the nation. (Loan limits are constantly changing and this number may be outdated. See the FHFA website or a lending professional for current limits.)
However, there are high-price areas where conforming loan limits are increased. For example, in the three counties that make the Seattle metro area, the loan limit for a single-family home is $776,250.
Any loan at or below the limits for the county are conforming loans, as they “conform” to the standards set by the FHFA.
What are Jumbo Loans?
A jumbo loan is anything above the conforming loan limits. (In fact, another name for a jumbo loan is “non-conforming.”) These are simply loans that have higher amounts, well beyond the total set by the FHFA. Therefore, they are too large to have the government support enjoyed by other loan options, but they also allow for the purchase of outstanding properties, helping people purchase homes that would otherwise be out of reach.
It’s really that simple. If you need a loan higher than the limits for your county, you’ll likely need a jumbo loan. The specifics for financing can be more difficult, but you may be surprised at how easy it is to qualify, assuming you have a solid income and decent credit history.
When Will You Need a Jumbo Loan?
While jumbo loans can be used in just about any situation, assuming you need the high loan amount, there are some indicators that this could be the best option for your needs…
When You Want a More Luxurious Property
If you are seeking a high-end home with gorgeous fixtures, top-quality amenities, and all the conveniences you desire, a jumbo loan may be required. Your needs will depend on the specific house, but if you are looking for something with a decorative pool, high-end home theater, or complete billiards and game room, a jumbo loan may be the only option.
When You Need More Acres
Perhaps it’s not luxury you desire, but space. In this case, you may need a jumbo loan, especially if you want to buy a piece of property with multiple acres that is also near a metro area. For example, if you would like you purchase a six-acre property with a large house within driving distance of downtown Minneapolis, you probably can’t make the purchase without a jumbo loan.
When You Don’t Have a Large Downpayment
Jumbo loans are determined by the amount you borrow, not by the total purchase. But these two numbers are obviously connected. The current base limit is around $548,250; with a large downpayment you could purchase a home well above $600,000.
But if you have a small downpayment and still want a home worth a large price, you may need to use a jumbo loan. For example, if you want to purchase a home for a total price of $570,000, but you only have a $15,000 downpayment, you’d need a loan of $555,000, which is above the conforming limit in most areas.
When You Want an Excellent Home in an Average-Cost Area
Conforming loan limits are based on median prices in each county, but there are many homes in these “typical” counties (for lack of a better term) that are so high-priced they’ll likely require a jumbo loan.
For example, Hillsboro County, Florida, home of Tampa, is a county with base limits, which means any single-family home has a conforming limit of $548,250. However, as of writing this article there were 601 homes listed with a sale price of $750,000 or higher. There were 340 listed at or over $1 million, and 112 for $2 million or more. Unless you have a massive downpayment, you’ll need to use a jumbo loan to make the purchase.
Do Jumbo Loans Have Higher Interest?
With higher loan totals, and without government support, jumbo loans inherently have more risk. For this reason, many assume they also have higher interest rates. But this is not always the case.
Can jumbo loans have high interest rates? Of course. But it’s inaccurate to say that all jumbo loans have high interest rates. In fact, there is a high level of competition among lenders for these making loans. Because of their large totals, jumbo loans can bring stronger profits to lending institutions. (The profit on a $1 million loan is almost certainly larger than a $250,000 loan.) Therefore, banks and lending groups may offer lower-than-expected rates for jumbo loans in order to attract borrowers.
Interest, however, is a case-by-case situation, and much depends on the individual borrower and their lender.
Jumbo Loans Can Be used for Investment Properties, Vacation Homes, and More
Jumbo loans, it should be noted, are available for investment properties, vacation homes, and other types of real estate purchases.
Financing for this type of property may be even more difficult from a qualification perspective, as the risk is slightly higher, but it still allows for the purchase of some excellent properties.
Purchase Your Dream Home with a Jumbo Loan
When you are ready for a world-class property, contact our staff right away. If you need a loan above the conforming limits for your county, we can help with an affordable jumbo loan with reasonable interest rates.