What is a Jumbo Loan and Who Needs It?

Are you hoping to borrow for a bigger home? Jumbo loans are the term used for mortgage loans that surpass the normal loan limit, currently set at $424,100 in Redding. This number is the maximum loan amount that’s backed by Fannie Mae or Freddie Mac. Jumbos work great for people buying big and not wanting to deal with multiple piggyback loans.

Jumbos have gained popularity ever since the housing market has recovered from recession, and while interest rates have been low. Nowadays, these loans come from big banks that are keeping their loans and not selling them. This does make interest rates slightly higher on jumbo loans (because the risk of lending is also higher). However, jumbos are now even more ideal for home buyers, as interest rates for these loans are low. Current interest rates for jumbo loans are some of the lowest rates in the last five years.

Listed below are the major requirements for jumbo loans. These include great credit, proper down payment amount, and debt-to-income ratio.

Requirements for Jumbo Loans Include:

1. Credit Score

It typically takes a credit score of 720 or higher to receive a jumbo loan. Some lenders are now giving jumbo loans to scores in the six hundreds, but for the sake of interest rates and private mortgage insurance–the higher the credit score the better.

2. Down Payment

Commonly, the loan-to-value for a home exceeding $500,000 is 90 percent. This means that if a home is priced at $500,000, lenders are not likely to loan more than $450,000. You can expect the down payment required to secure a jumbo loan to be between 10-20%.*

3. Debt-to-Income

Lenders do not give jumbo loans to applicants whose debt-to-income ratio exceeds 45%. This means that a bank will not lend a jumbo loan to you if more than 45% of what you make goes towards paying off debt.

Final Thoughts

A jumbo mortgage loan may be appropriate for you if you are going in for long term investment on valuable property. A lender will want to know what your long term vision is for the property you wish to purchase, and your financial strategy to pay the loan off in the time allotted. If you have found financial security, and a house that you wish to make your home—a jumbo loan is the simple mortgage setup you need.

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