A jumbo loan is one that exceeds the limits for conforming loans set by the Federal Housing Finance Agency (FHFA). These conforming loans are those that can be serviced by Fannie Mae and Freddie Mac. Because a jumbo loan exceeds these limits, it's also called a non-conforming loan.
To get one of these large mortgages, you'll probably have to jump through more hoops. For instance, you'll need to show you have a jumbo-sized salary and that you've saved a larger down payment, as a percentage of the total amount financed, than is required for a regular or conforming loan. Depending on other factors, it's not uncommon for lenders to require a 20 percent down payment for a jumbo, compared with as little as 5 percent--or sometimes less--for a conforming loan.
Conforming loans are generally sold to Fannie Mae and Freddie Mac, which means that they must adhere to the limits and requirements set by these government-sponsored enterprises. Jumbo loans, on the other hand, are not, and can be obtained through private lenders.
Jumbo loans may be a good option for you if you need a larger loan than the local limit for conforming loans and don’t have the cash flow to put down a larger down payment.
An added benefit of this mortgage option is that there’s no mortgage insurance requirement. However, because this loan may come at a higher risk to the lender, it typically has slightly stricter qualification requirements than typical conforming loans that possess lower limits.
The 2021 loan limit on conforming loans is $548,250 in most areas and $822,375 in high-cost areas. For borrowers interested in purchasing more expensive properties, jumbo loans are a valuable alternative.
Jumbo Loan On A Home PurchaseIf you’re buying a one-unit primary property with a loan amount of up to $1 million, you’ll need to have a minimum median FICO® Score of 700 and a minimum down payment of 20%.
The maximum debt-to-income ratio – which compares your minimum monthly installment and revolving debt payments to monthly income – must be no higher than 43%.
If the primary residence has more than one unit or the loan amount is higher than $1 million, you’ll have slightly different credit score requirements, and you’ll need to make a higher down payment – up to 40%, depending on the loan amount and type of occupancy.
Rate Or Term Refinance On A Jumbo Loan If you plan on doing a rate or term refinance on a jumbo loan, you’ll need to have a minimum FICO® Score of 700 and a maximum DTI of 43%.
The amount of equity you’re required to have in the home to refinance will depend on the loan amount. For a loan amount of up to $1 million, you must have at least 20% equity in your home. For loan amounts up to $2 million, you’ll need to have more equity in the home (up to 40%).
Jumbo Loan Rates
Because there’s greater risk involved in lending large amounts of money, jumbo loans typically carry higher interest rates than conforming loans. However, jumbo loan rates can vary dramatically, depending on your lender, finances and down payment.
When mortgages are viewed as involving less risk, lenders may choose to offer rates that are in-line or even lower than conforming loan rates.
This info is from a longer article at: https://www.quickenloans.com/learn/jumbo-loan