Jumbo Loans

A jumbo mortgage loan is characterized by a loan amount that exceeds the maximum loan limits set by Fannie Mae & Freddie Mac. Fannie & Freddie are the 2 government sponsored companies that buy loans from mortgage lenders, thereby creating liquidity in the mortgage markets. These loans account for nearly 60% of today’s mortgage market. Jumbo mortgage products are not loans that Fannie Mae or Freddie Mac will buy or back. Thus, they are often called “portfolio loans” or a “non-conforming loans”. Typically lenders have a special set of loan products with completely different guidelines specifically for jumbo loans. A portfolio loan simply means that the lender will retain the servicing of the loan themselves, and not sell your loan to another lender after closing.

Jumbo Mortgage Loan Basics

  • Higher credit score requirements – usually 700+
  • Lower debt to income ratios – 45% back end DTI
  • No Private Mortgage Insurance available
  • Higher cash reserve requirements (6X monthly payments must be in savings)
  • May require multiple appraisals
  • Subject the tighter underwriting standards
  • Larger down payments – usually 10% minimum
  • Higher interest rates

Jumbo Loan Options

Jumbo loans for the MA home owner have a variety of options like conventional loans, but you find a higher percentage of borrowers opting for ARM’s instead of fixed products because of the higher fixed rates associated with jumbo loans.

Fixed: The payment is fixed for the duration of the loan

ARM: Adjustable Rate Mortgage can be fixed for a varying amount of time before it becomes possible for the interest rate to adjust. Some of the more popular products are the 3/1ARM, 5/1ARM, 7/1ARM & 10/1 ARM. The first number is the length of time the interest rate is fixed for. The 1 is the amount of times the loan can adjust in a year period once it moves to it’s adjustable stage.

Interest Only: An “I.O.” loan as its commonly referred to, requires that the home owner only pay the interest on the loan. The actual loan balance doesn’t decrease, like a traditional fully amortized loan. This loan isn’t recommended for most people but can be beneficial to investors, someone who gets paid in lump sums and is disciplined with their finances, or high net worth borrowers.

Mortgage Buddy Tip: With historically low interest rates, try to qualify for ARMS loans with a longer initial fixed period to protect against possible rate increases.