What Everyone Ought to Know About Jumbo Loans
Buying a BIG Home?
Are you thinking about buying a BIG home this year? Congrats! But before you hop in your real estate agent’s car, you need to know something about jumbo loans.
I asked my friend and mortgage expert BRIAN KEY from Regions Bank to respond to seven commonly asked questions about jumbo mortgages.
What Is A Jumbo Loan?
A jumbo loan is defined as a loan that exceeds the conforming loan limit set by Fannie Mae/Freddie Mac which is $417,000 for a single family home in the middle TN market. A loan is considered a super jumbo when it exceeds $2M.
Myths & Misconceptions Of Jumbo Loans
Many have the perception that jumbo financing is more difficult to obtain and the terms are much less desirable which is simply not true.
There are jumbo products that require as little as 10% down and rates are often times the same or better than conventional loans. There is a full offering of eligible products including 30 and 15 year fixed as well as 5/1, 7/1 and 10/1 ARMS. The days of stating income and assets are well behind us, but qualifying for a jumbo loan is no more difficult than any other home loan mortgage.
How Are Jumbo Loans Different From Conforming Loans?
There are many factors that go into the underwriting of a jumbo loan and a complete financial picture is reviewed vs. a simple check list of requirements.
The amount of reserves one has after closing is an important piece to consider for jumbo financing. Typical debt to income requirements are 43% max on fixed rate loans and 40% on 5/1, 7/1 and 10/1 ARMs. Most jumbo loans require 12 months in post-closing reserves of the total monthly payment including taxes and insurance. The larger the reserves the more flexibility the lender will have in the debt to income ratios or other areas when the borrower may fall just outside of guidelines.
The typical down payment on a jumbo loan is 20%, however there are loan programs that allow for as little as 10% down. Obviously the smaller the down payment the tighter the qualifying requirements will be as the risk increases.
What Are The Interest Rates Relative To Conforming Loans?
Interest rates on jumbo loans are tracking very closely with conforming loans and in some cases are actually lower than conforming rates. Banks once again for an appetite for jumbo mortgages, especially since the credit policy is set by the bank vs Fannie/Freddie and they perform well on the balance sheet as a rule of thumb.
What Does The Borrower Need To Qualify For A Jumbo Loan?
Many Factors Go Into The underwriting of a jumbo loan such as property type (primary residence vs. second home, resort condo vs. single family home, neighborhood vs. rural farm setting), loan amounts of $1M or less vs. up to $2M or above, along with other strengths/weaknesses of the borrower, but typically a credit score in the 700 to 720 range is required along with no mortgage lates in the past 24 months. Other derogatory items such as prior short sales, bankruptcy or public records may also affect one’s ability to qualify.
Another important area for qualifying is income. I often times deal with self-employed individuals on jumbo loans which can entail some complex and complicated tax returns. I have worked hard to educate myself on calculating income accurately from complex returns and non-traditional income sources such as interest/dividend income, K1’s along with bonus and commission income. This is a common area where jumbo loans get “off track” from the beginning, but it is not uncovered until later in the process. Having a knowledgeable mortgage banker who is experienced in dealing with affluent borrowers and complex transactions is a key component to a successful and low stress transaction.
Lenders are also looking for consistent income over the past couple of years and typically require a P&L with balance sheet on the business after end of 1st quarter to support consistency in income. Declining income is one area that can cause a lot of heart burn. If the income has declined from the previous year be prepared to explain the decline and to qualify on the most recent lower year income amount.
Trends In The Jumbo Market?
The housing market has seen a nice recovery beginning in 2013 through today. Jumbo sales are doing well nationwide and middle TN is no exception. The jumbo market is the one area that continues to outperform expectations and remain strong despite a dip in other price points recently.
I began originating mortgage loans in Middle TN in 1998. My business focus is on the affluent home buyer but I also work with first time buyers as well as buyers looking to move up in home and also retirees looking to downsize. I strive to deliver a high level of service and communication regardless of the client and loan size. I have been married to Holly for 19 years and have 2 boys, ages 16 and 11. I enjoy boating, golf and spending time with my family when not assisting a family finance a new house to call home.
I just began reading “One Nation” by Dr Ben Carson.
Brian can be reached at 615.419.0291 or Brian.Key@regions.com