Jumbo Mortgage Criteria
Mortgage loans are available in almost any size. The federal government’s mortgage agencies, known as Fannie Mae and Freddie Mac, agree to buy loans up to a certain amount from a bank if the borrower doesn’t pay the loan. The cap on this amount is generally $417,000, any loans larger than that are considered jumbo mortgages.
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Jumbo Mortgage Loans
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In most areas of the U.S., the jumbo loan limit is anything over $417,000. In a few markets such as California and Seattle, the limits are higher. This reflects the higher market value of homes in general in these areas. To qualify for a jumbo loan, a borrower must meet certain criteria set by the lender.
Property Type
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Some lenders place a restriction on the type of property they will offer a jumbo loan for. Typically, jumbo loans can only be obtained for a primary residence; that is, your home for at least seven months out of the year. Vacation homes may not qualify for a jumbo loan.
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Down Payment
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Prior to the mortgage crisis in 2007, lenders approved jumbo mortgages with little or no down payment. Today, it is almost impossible to obtain a jumbo mortgage without a 20 percent down payment. Some mortgage companies require more than 20 percent.
Income
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Lenders want the monthly mortgage payment to be no more than 38 percent of the borrowers’ income before taxes. If a borrower cannot meet this stipulation, the loan will not be approved. The ability of the borrower to make payments is the most important factor to the lender during the loan approval process. A two-year income history may need to be disclosed.
Other Considerations
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Refinancing a jumbo loan might be difficult if the value of the home has fallen. To refinance, a down payment may be required if there is less than 20 percent in equity. Also, virtually all jumbo loans have variable interest rates. Therefore, the rate and monthly payments will adjust over time. Be prepared financially for this.
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