Jumbo loans are the big home loans, the ones that are larger than the conforming loan limits that are set down in local regulations. But just how big is big?
Beyond the Limits of Conforming Loans
Fannie Mae and Freddie Mac, the government sponsored enterprises, set the maximum value of any individual mortgage they are willing to purchase from a lender. Loans that meet this criterion, among others, are considered “conforming.” That is, they conform to Fannie and Freddie’s guidelines. A jumbo loan is any loan for more than the “conforming” limit.
Jumbo Loans Are Defined by Local Median Home Value
The loan limits adjusted in 2008 as a part of the Housing Economic Recovery Act of 2008, which bumped the limit to 125% of the median home value in the metropolitan statistical area, or $729,750, whichever amount is lower. The limits were extended through 2010, though not all mortgage lenders accepted the new limits because the old limit of $417,000 typically retained higher interest rates.
In much of the US, the limit on conforming loans is $424,100. In some housing markets, such as in New York and Los Angeles where the housing market is extremely high cost, the conforming loan limit is as high as $630,000+. In Guam, Hawaii and the Virgin Islands, the limits are higher, and can be well over $700,000.
Jumbo Loan Qualification Process
Underwriting jumbo mortgages is not very different to underwriting for conforming mortgages, though in some cases jumbo lenders may require more than one appraisal. Depending on the size of the loan and the area, the down payment may be much larger in both dollar value and percent, than conforming loans. The minimum down payment can be as large as 30% for some home purchases, which can throw some borrowers off. In many cases the lenders can have specific qualifications such as high credit scores that are 700+, debt to income ratios of around 40%, and up to a year’s worth of reserves.
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