Jumbo Loan


Jumbo Loan

Jumbo Loan

A jumbo loan is considered to be a home or mortgage loan with an amount that exceeds the conforming loan limit that is imposed by Fannie Mae or Freddie Mac. A jumbo loan is a home or mortgage loan that is more than $417,000. If a loan is too large it will exceed the conforming limit, therefore it will become a jumbo loan. Since jumbo loans are larger than traditional conforming loans, they sometimes could have higher interest rates. A jumbo loan is usually used for larger single family homes.


A jumbo loan is different because qualifying for a jumbo loan will require lower debt to income ratios, a higher credit score, a larger down payment, and higher reserves than most traditional loans. You should only consider a jumbo loan if you know that you will have the means to pay off the jumbo loan quickly. Most lenders will consider jumbo loans a riskier type of investment so they may charge higher interest rate that is the reason why you would want to pay off the loan quickly so you won’t end up paying more money in higher interest charges. A jumbo loan also comes with stricter qualifications and most lenders will not invest in these types of jumbo loans if they know there is a risk that the borrower will default on the loan. Since there is not a requirement of private mortgage insurance with a jumbo loan, the down payments will be larger and the credit score will need to be above a 700. Lastly, borrowers of a jumbo loan will need to have at least a six months’ worth of reserve in the bank after closing and the reserve amount could be up to 20 percent of the jumbo loan.