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What Is a Jumbo Mortgage Loan?

A jumbo loan (or mortgage) is a type of funding that exceeds the limits set by the Federal Housing Finance Agency (FHFA). Unlike conventional mortgages, a jumbo loan is not authorized to be bought, guaranteed, or securitized by Fannie Mae or Freddie Mac. Intended to finance higher-priced properties and homes in highly competitive local real estate markets, jumbo mortgages come with exclusive underwriting requirements and tax implications. These types of mortgages have gained momentum as the housing market continues to recover following the Great Recession in 2008.

The value of a jumbo mortgage varies by state—and even county. The FHFA sets the conforming loan limit size for different areas on an annual basis, though it changes infrequently. In 2021, the Florida conforming limit is $548,250, up roughly $38,000 from 2020's limit of $510,400.

What's the Difference Between a Jumbo and a Conforming loan?

From large and small to high-interest and low-interest, Florida mortgages come in all sizes and shapes. The two most common types are jumbo (or non-conforming) and conforming. To understand the distinction between the two, let's look at federal loan limits first.

The Federal Housing Finance Agency (FHFA) sets conforming loan limits on a yearly basis. Loan caps decide whether mortgages are qualified for purchase by Fannie Mae and Freddie Mac. Mortgages that fall within these boundaries are deemed conforming. Home loans that occur outside of these amounts are considered non-conforming.

Some lenders will let you take out a jumbo mortgage. These home loans are normally kept by the lender and are not guaranteed or insured, which means they carry more risk. Each jumbo mortgage lender will have its own criteria for making these loans.

Meeting the Criteria for a Florida Jumbo Mortgage

The qualification procedure for a jumbo loan is comparable to the conforming loan process. The lender will examine your assets, income, and credit score, but there are some distinct differences. Jumbo loans are more difficult to qualify for than conforming loans since lenders absorb an added risk with jumbo loans. As a result, mortgage lenders are looking at several vital factors to determine your risk level. Generally, this means a higher credit score (over 700), higher income and cash reserve requirements.

Here are some of the main criterion differences between jumbo and regular home loans.

  • Credit score: All Florida jumbo mortgage lenders require a minimum credit score of 700 and above.
  • Cash reserves: Lenders will examine cash reserves to see if a borrower has substantial cash reserves should something happen to their income.
  • Down payment: Jumbo loans expect greater down payments than conventional loans. It's not unusual for lenders to require a minimum of 20% down payment for jumbo loans.
  • Income: Simple, you need higher income to demonstrate ability to repay the Florida jumbo mortgage. This is proportionate to amount borrowed vs. income.
  • Debt-to-income ratio: Your debt-to-income ratio (DTI) is vital. The DTI includes your car payments, credit card bills, insurance and other debts that affect your ability to repay a loan. The conforming loan rule is to be under 43%. However, jumbo loans typically require an even lower amount.
  • Loan-to-value ratio: Jumbo loans also have narrower loan-to-value (LTV) ratio requirements than conforming mortgages. The LTV is a gauge of how much money the land / house is valued vs. the loan amount.

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