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Ever heard of a jumbo loan? It’s no secret that some properties cost more than others. You have luxury homes, houses with large land parcels, multi-family investment properties, and even some average-sized houses in high-priced real estate markets. When you are buying a more expensive home, you may need a jumbo loan.
Understanding What Makes a Jumbo Loan
First, let’s define what a jumbo loan is. As the name would imply, it is a mortgage loan for a higher-than-standard amount of money. It is often a necessity when purchasing a higher-priced residential property. As such, it comes with more risks for both the borrower and the lender. These loans generally come with tougher qualifying standards and more restrictions to help protect all parties involved.
Each year, Fannie Mae, Freddie Mac and the Federal Housing Finance Agency (FHFA) set what are known as “conforming loan limits” (CLLs). These limits can vary by location and are based on median sales prices in a particular county, township or metro area. Any mortgage loan amount exceeding these set limits are considered “jumbo loans” by the mortgage lender. Jumbo home loans are not insured by these government housing agencies like conventional loans. This is why they present more risk and can be more difficult for a home buyer to obtain without strong qualifying standards.
What Are the 2023 Conforming Loan Limits?
The baseline conforming loan limit for 2023 is $726,200, which is up from $647,200 in 2022. This applies to most real estate markets throughout the country. In designated high-cost areas as identified by the FHFA, the 2023 loan limit can go as high as $1,089,300. This means any mortgage loan above these amounts (based on the location of the property) will require a jumbo loan from a qualified mortgage lender.
Conforming loan limits will also vary based on the type of property. The above numbers are for single-unit houses or condos. Below are the CLLs for multi-family properties to provide a direct comparison:
2023 Conforming Loan Limits in Most Areas
• 1 Unit – $726,200
• 2 Unit – $929,850
• 3 Unit – $1,123,900
• 4 Unit – $1,396,800
2023 Conforming Loan Limits in High-Cost Areas
• 1 Unit – $1,089,300
• 2 Unit – $1,394,775
• 3 Unit – $1,685,850
• 4 Unit – $1,396,800
Jumbo Loan Qualification
Jumbo home loan borrowers will need to have a strong financial standing to qualify for a jumbo mortgage loan. A higher down payment (at least 20% of the loan value, sometimes up to 30% with certain lenders) can also be very beneficial for qualification, which is often the case for buyers who are transferring home equity from the sale of one property to fund the purchase). You should have a credit score (FICO score) of at least 680, but 700-plus is even better. You will also need a debt-to-income (DTI) ratio of less than 43%. Lastly, you will have to provide proof of steady income/employment to cover your higher monthly mortgage payments.
You can expect to pay a somewhat higher-than-average mortgage interest rate with a jumbo loan, and mortgage insurance (PMI or MIP) could be required depending on the size of your down payment. There may be other additional fees and taxes associated with a jumbo loan, which can vary based on the location and lender.
How Much Can I Borrow with a Jumbo Loan?
There really is no maximum amount. Jumbo mortgage loans are more defined by the floor than the ceiling. Anything more than the current conforming loan limits will be considered a jumbo loan. Jumbo mortgage loan amounts can be quite high, as long as the borrower qualifies for the mortgage loan. Your maximum jumbo home loan amount and fixed mortgage rate will be based specifically on your qualifying standards. Also know that some lenders may be able to offer higher jumbo loan amounts than others. Not all have the necessary financial backing or are willing to take the risk with super-expensive jumbo loans.
To learn more about jumbo loans, to get pre-qualified for a jumbo loan and to learn your maximum qualified jumbo loan amount, contact Moreira Team | MortgageRight today!
