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How Do Jumbo Loans Work?

A jumbo loan is something you’ll likely need if you’re looking to purchase a luxurious home, one whose features are more expensive than the average property in the area. What qualifies as a jumbo loan in your neck of the woods depends on the county in which you live. 

Let’s explore the details around getting a jumbo loan. 

What’s a Jumbo Mortgage Loan? 

If you’re in the market for a new home and the asking price is higher than average, you might need to consider getting a jumbo loan.  

Technically, a jumbo loan is a mortgage whose size surpasses the threshold set by government agencies Fannie Mae and Freddie Mac. These government-sponsored enterprises (GSE) are responsible for buying up the lion’s share of U.S. single-family mortgages, but not when it comes to oversized loans. 

Due to their nature as non-GSE products, jumbo mortgages are considered non-conforming loans.   

Considering that jumbo loans fall outside the parameters of the GSEs, they do not qualify for the government guarantees that their conforming loan counterparts receive. As a result, jumbo home loan requirements can be more stringent than secured loan products. 

Jumbo vs. Conventional Loan 

The GSEs were formed so that banks and credit unions would have enough cash on hand to perpetuate the lending process to other homebuyers. 

A key feature of conforming loans is a cap placed on the amount, which protects the government from getting stuck holding too big a bag from borrowers who turn out to be a credit risk. 

Jumbo loans are outsized mortgages for homes on the expensive side of the price spectrum. Often, a jumbo loan is appropriate if you are looking to buy a luxury home that stands out from the pack in the neighborhood, but that’s not always the case. 

In a white-hot real estate market, you might find yourself needing to access a jumbo mortgage to outbid the competition.  

Interest rates attached to jumbo loans are likely to exceed conventional loans because of the bigger risk to lenders. A similarity between jumbo and conventional loans is that both are repackaged and sold to investors in the secondary market. 

However, due to their size, jumbo mortgages attract a different set of investors with a different risk profile.  

Conforming Loan Limit Explained 

The restrictions around conforming loans mainly involve the size of the mortgage. The Federal Housing Finance Agency, the department that oversees Fannie Mae and Freddie Mac, updates these parameters annually. 

In 2021, conforming loan limits prices were $548,250 for single-family homes and increased to $647,200 in 2022.

The conforming loan limits are adjusted each year due to fluctuations in the average U.S. home price. Between Q3 2020 and Q3 2021, the average home price increased an average of 18.05%, which established the baseline from which the conforming loan limit was set.  

Total Mortgage works with borrowers across the United States, making it easy to find a mortgage expert near you. 

How Do Jumbo Loans Work?  

When you’re getting a jumbo loan, it helps to know what to expect beforehand. We have streamlined the mechanics of jumbo mortgages so you’re not taken by surprise: 

Requirements for a Jumbo Loan

Jumbo home loan requirements will vary from lender to lender, but everything is higher as a general rule of thumb. This is due to the bigger size of these mortgages, which places more risk on the lender’s shoulders. 

Here’s a breakdown of the requirements for a jumbo loan: 

Explore Total Mortgage’s Jumbo Loan Options

If your next home is one that is probably going to turn some heads, and you’ve got the credit profile and income required, you came to the right place. Consider jumbo loan options from Total Mortgage, whether a 10/1 ARM, 15-year, or 30-year mortgage, and apply online today.

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