Posted: 05/20/2016

There are many reasons why you may need a jumbo loan. You might be purchasing in a highly desirable area with high property values. Maybe you have simply outgrown your current home and are in need of more space for your family. When you need a larger loan to fit your larger dreams, a jumbo loan may be the answer.

What is a jumbo loan?

A jumbo loan, also known as a non-conforming loan, portfolio loan or non-agency loan, is a mortgage loan exceeding the conforming loan limits set by Freddie Mac and Fannie Mae, which vary by county or home type.

The three main factors that determine if you will need a jumbo loan or a conforming loan (a loan that fits within the guidelines of Freddie Mac and Fannie Mae) are loan type, location and home type.

  • Loan type: Federal Housing Administration and Fannie Mae/Freddie Mac loans have different limits compared to conventional loans. Your loan type will factor into whether or not you need a jumbo loan.
  • Location: Conforming loan limits can vary by county. For example, the conventional loan limit for a single-family home in San Francisco County is $625,000. However, the conventional loan limit for a single-family home in Klamath County in Oregon is $417,000.
  • Home type: Conforming loan limits may vary depending on the type of home you are purchasing. A single-family home may have a conforming loan limit of $417,000, but a two- to four-unit home in that same county may have limits up to $801,950.

The types of jumbo loans available

Jumbo loans are available in a variety of fixed and adjustable rate terms. Jumbo loan programs allow for fixed, adjustable and even interest-only programs. Adjustable rate mortgages often offer more attractive rates compared to jumbo-fixed rate programs, making it one of the most common jumbo loan types.

What is a PiggyBack Second?

Another option to consider is a conforming loan with a “piggyback second” loan to bridge the gap between the conforming and non-conforming amounts. In some cases, a home owner can get a more affordable mortgage payment by taking out two loans (one up to the maximum conforming limit and a second “piggy back” for the remaining loan amount). This second piggy back loan may have a higher interest rate. In some cases, this option can be cheaper in the long-run than a jumbo loan.

Requirements for a jumbo Loan

Interest rates on jumbo loans tend to be higher, due to the increased risk associated with larger loan amounts, and because the loans cannot be sold to Freddie Mac or Fannie Mae on the secondary market. Below are the traditional requirements for jumbo loans:

  • Credit – Generally, a good credit score is required, which should be at a minimum 700 or higher.
  • Financial reserves – Jumbo loan programs may require you to have a certain amount of reserves – the amount of liquid assets you have available after your mortgage has closed and you have paid for your down payment and closing costs. As a general rule, one month of reserves should equal one mortgage payment, includes taxes, insurance and any assessments. Jumbo loan reserve requirements may vary from six months of reserves to 12 months of reserves or more. Reserve requirements may vary from one loan program to the next, and may depend on other factors such as your credit score.
  • Down payment – Jumbo loans tend to have higher down payment and cash reserve requirements.

If you do need a jumbo loan, the experienced mortgage loan advisors at Guarantee Mortgage can help you find the loan program that suits your needs. If you have questions, email us at gminfo@guaranteemortgage.comcreate new email or give us a call at 415.441.5050 and we’ll fill you in more on jumbo loans.

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