Understanding Jumbo Loans: How to Finance Your Luxury Property

A jumbo loan is a non-conforming mortgage that exceeds limitations set by the Federal Housing Finance Agency (FHFA). Jumbo loans were designed to finance luxury properties and homes in extremely competitive local housing markets.

How Do They Work?

If the property you’re interested in purchasing is worth more than the conforming loan limits, your lender would issue a jumbo loan. Since jumbo loans are not authorized through Fannie Mae or Freddie Mac, they carry more credit risk for lenders and thus have more strict requirements than conforming loans.

Jumbo loans do not automatically mean higher interest rates. Jumbo mortgage rates are often very competitive. It ultimately depends on the lender and market conditions.

When Should You Consider One?

You may want a jumbo mortgage if:

• Your home is in a high-cost area.
• You’re financing a luxury home.
• You have a high income.
• You have a strong credit rating.

What are the Requirements?

Jumbo loans have similar qualifications to conforming loans. Your lender will review your assets, income, and credit score. They have unique underwriting requirements and tax implications. They usually require a higher credit score and a lower DTI than conventional mortgages. There are typically more strict requirements, such as provable liquid assets and cash reserves equal to six months of mortgage payments.

Is a Jumbo Loan Right for You?

Now that you know more about jumbo loans and the requirements, we hope you feel more prepared about your mortgage options. To learn more about whether a jumbo loan is right for you, contact us today.