Another name for a jumbo mortgage is a non-conforming mortgage. This is a loan a lender makes you that doesn’t “conform” to the guidelines of Fannie Mae and Freddie Mac. Created by Congress in 1938 and 1970 respectively, Fannie Mae and Freddie Mac provide stability and affordability to the mortgage market by buying “conforming” mortgages from lenders, which gives lenders liquidity to make more mortgages.
Fannie Mae and Freddie Mac only buy mortgages meeting their guidelines for a down payment, credit score, post-closing reserves, and loan amount. This amount is reviewed each year and adjusted for each marketplace. To determine if your loan amount is a conforming loan or a non-conforming (Jumbo) loan, give us a call!
You’d use a jumbo mortgage when you’re seeking a loan amount that’s greater than the conforming loan limit in your area. In most of the country, that means you’ll use a jumbo mortgage if your loan amount is greater than the Fannie Mae loan limit it would be considered a non-conforming (Jumbo) loan. To determine the best loan option for you contact us today!
Jumbo mortgages have the same overall qualifying methodology as a conforming loan. Lenders will look at the credit score, down payment size, total monthly debt obligations relative to income (called your debt-to-income ratio), and money left over after closing. Credit score requirements are about the same for conforming and jumbo: a credit score down to 680 generally gets you most available loan options, albeit with a higher rate than you’d get with a top-tier credit score of 780 or greater.
As for money left over after loan closing — often called reserves or post-closing liquidity — jumbo loans will be more stringent than conforming. Typically jumbo lenders want to see 12 months of reserves after the close, half liquid (in a checking or savings account), and half calculated from retirement assets. Conforming loan reserve requirements range from 0 to 12 months, depending on factors such as credit score, down payment, and DTI. Jumbo exceptions are available if your debt-to-income ratio is low and your down payment is high.
Before the financial crisis of 2008, jumbo loans typically had rates at least .25 percent higher than conforming loans because jumbo lenders were perceived as taking more risk making loans that couldn’t be sold to government-backed Fannie Mae and Freddie Mac. This risk translated into higher consumer rates. In the years following the financial crisis, federal regulations have impacted rate markets in such a way that has enabled banks to keep jumbo rates about the same as conforming rates. This dynamic can change over time, ask The Scott Miller Team at Nations Lending.
SCOTT MILLER - Branch Manager | NMLS #90280
CALL US: (612) 751-7268
STOP IN: 201 Jackson St. Suite 204, Anoka, MN 55303
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