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When it comes to mortgages, there are a few different types of loans that you might hear about. One of those is the jumbo loan. But what is a jumbo loan? And more importantly, do you need one? In this blog post, we will answer all of your questions about jumbo loans! We’ll cover what a jumbo loan is, how to qualify for one, and more! So if you’re thinking about buying a home and want to know more about jumbo loans, keep reading.
What is a jumbo loan?
A jumbo loan is a mortgage that exceeds the conforming loan limit. This limit is set by the Federal Housing Finance Agency (FHFA) and changes every year. For 2020, the limit is $510,400 for most areas of the country. But in high-cost areas, like Los Angeles or New York City, the limit is higher. In those areas, the limit is $765,600. So if you’re looking to buy a home in one of those areas and your mortgage exceeds that amount, you’ll need a jumbo loan.
How do you qualify for a jumbo loan?
Qualifying for a jumbo loan is similar to qualifying for a conforming loan. You’ll need to have a good credit score, a low debt-to-income ratio, and a steady income. You’ll also need to show that you have enough cash saved up for a down payment and closing costs. The biggest difference is that you’ll need to prove that you can afford the higher monthly payments that come with a jumbo loan.
Jumbo loan requirements
Because jumbo loans aren’t backed by the government, each lender can set its own requirements. But there are some common standards that you’ll need to meet. For starters, you’ll need a credit score of at least 680. You’ll also need to have a debt-to-income ratio of 43% or less. And most importantly, you’ll need to have enough cash saved up for a down payment of at least 20%.
Jumbo vs conventional loan
Now that you know what a jumbo loan is and how to qualify for one, you might be wondering how it differs from a conventional loan. The biggest difference is the loan amount. As we mentioned before, a jumbo loan exceeds the conforming loan limit. But there are also other differences. Jumbo loans typically have higher interest rates than conventional loans. And they also require a larger down payment – often 20% or more.
What is the interest rate on a jumbo loan?
The interest rate on a jumbo loan will depend on a few factors, including your credit score, debt-to-income ratio, and the type of loan you choose. Fixed-rate jumbo loans typically have lower interest rates than adjustable-rate jumbo loans. And if you have a good credit score and a low debt-to-income ratio, you might be able to get a lower interest rate.
Is a jumbo loan right for you?
Now that you know everything there is to know about jumbo loans, it’s time to decide if one is right for you. If you’re looking to buy a home in a high-cost area and your mortgage exceeds the conforming loan limit, you’ll need a jumbo loan. But keep in mind that jumbo loans typically have higher interest rates and require a larger down payment than conventional loans. So make sure you are prepared for the higher monthly payments before you apply.
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