A jumbo mortgage is a type of mortgage loan whose principal balance exceeds conforming loan limits for Fannie Mae and Freddie Mac, which are currently between $424,100 and $636,150, depending on where you live. Jumbo mortgage interest rates are competitive with conventional loans, but income, credit score, and appraisal requirements can be stricter.

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Details on a jumbo mortgage

The term "jumbo mortgage" refers to a mortgage loan that exceeds the conforming loan limits set by the Federal Housing Finance Agency (FHFA) for mortgages to be acquired by Fannie Mae or Freddie Mac.

For 2017, these limits have increased for the first time in over a decade. Since the limits are based on home price appreciation, and the average U.S. home prices haven't exceeded their 2007 peak until now, the limits were stuck for years.

The baseline conforming loan limit for a single-family home is now $424,100, up from $417,000. If the home is located in a high-cost area, this limit can be as high as $636,150 in the continental U.S. There are also higher limits for two- to four-unit properties:

Number of Units

Baseline Conforming Loan Maximum

High-Cost Area Maximum

1

$424,100

$636,150

2

$543,000

$814,500

3

$656,350

$984,525

4

$815,650

$1,223,475

Data source: Federal Housing Finance Agency.

If your loan amount (not the purchase price) on a home you wish to purchase will exceed these limits, you'll probably need to obtain a jumbo mortgage. These loans have interest rates competitive with conventional mortgages -- a quick look shows 30-year jumbo mortgage rates advertised between 4% and 4.375%, while the national average for a conventional 30-year fixed-rate mortgage is about 4.1%. However, since these loans aren't eligible to be purchased by Fannie Mae and Freddie Mac, and therefore represent a greater risk to the lenders, they tend to have stricter requirements, as I'll discuss in the next section.

Requirements to get a jumbo mortgage

The lending standards for jumbo mortgage loans vary by lender, but in general, here's what to expect:

  • You'll need a strong credit history, which typically means a FICO credit score of 700 or higher for a jumbo loan.
  • You can get approved for a jumbo mortgage with a debt-to-income ratio as high as 45%, but these loans often have higher reserve requirements then conforming loans.
  • With a conforming loan, you can make a smaller down payment if you pay for private mortgage insurance (PMI). There is no such option with jumbo mortgages, so plan on a down payment requirement of at least 20%.
  • Like a conventional mortgage, the property's appraisal must justify the price you're paying for the home. Many jumbo mortgage lenders require two appraisals, as opposed to just one for a conventional mortgage.

Pros and cons

The advantages of a jumbo mortgage are obvious. With this type of loan, you can borrow more than you could with a conventional mortgage, which could allow you to get into a home you otherwise wouldn't be able to. However, there are a few key disadvantages you should be aware of.

First, there are no low down payment options. You can get a conventional loan with a down payment in the 3% to 5% range, or an FHA loan with a 3.5% down payment. With a jumbo loan, expect your lender to require 20% or more.

Also, jumbo loan credit requirements can be stricter. Since these loans cannot be purchased by Fannie Mae or Freddie Mac, they are seen as riskier. You may be able to qualify for a conventional mortgage with a FICO score as low as 620, and an FHA loan with a score in the 500s. On the other hand, jumbo mortgage lenders typically require a score of 700 or more.

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