Loan Limits and Home Buying Part 2
/Dan Hubrich of Mountain View Mortgage is back and this month he’s talking about jumbo mortgages.
Last month I talked about conforming loan limits and how they work. This month I’d like to talk about jumbo loans and how they are different. When a loan is higher than the county conforming loan limit (Most counties are in the $500,000 to $600,000 range) then the loan becomes a jumbo loan. When that happens lenders tend to tighten up the guidelines quite a bit. There are 5 areas that we see changes in primarily. 1) Down payment. Most loans post Covid-19 require 20% down instead of only 5% down on a conforming loan. 2) Debt ratios also tighten up. Most lenders have a cap of total debts being no more than 43% of your gross income compared to 50% on a conforming loan. 3) Credit requirements are also tighter. Generally you have to have a score of 660 or higher compared to 620 for conforming. 4) Reserves. Conforming loans require 0 to 6 months of reserves depending on the situation and jumbo loans generally require 6-18 months of payment reserves. And 5) The rates tend to be a little bit higher on jumbo loans VS conforming.
As you can imagine, lenders do NOT want to foreclose on a higher end home as their losses could be significant so that’s why they have added guidelines to protect them. There’s nothing to be afraid of with a jumbo loan, you just need to be prepared going into it. One trick we can do though to avoid a jumbo loan is to do a 1st and 2nd combo loan. The way that works is that we keep the 1st mortgage to the conforming limit and then give you a small 2nd mortgage to make up the difference of the down payment and purchase price. Often times this saves the client money and offers better terms. Call me for questions and additional details. Thanks!!