It goes without saying that among the major elements of buying your dream home in California or Florida is determining the best type of mortgage for you. But what takes place if you have to get a mortgage with a large balance?
The answer is you may need a jumbo loan to purchase the home of your dreams. The following are tips that can make it easier to figure out if a jumbo loan is best for you.
What Is A Jumbo Loan?
A jumbo loan, or jumbo mortgage, is a residential mortgage loan that is greater than the conforming limit made by the Federal Housing Finance Agency (FHFA). Jumbo loans are unable to be protected by the government-sponsored Fannie Mae or Freddie Mac, which increases the lender's risk substantially.
What Are The Jumbo Conforming Loan Limits?
Fannie and Freddie specify the maximum amount for mortgages in certain counties – they’re known as conforming loan limits. Home loans that are below the limit are insured which protects the lender.
Conforming loan limits differ by state and county. In 2021, a person can get a loan up to $548,250 for a single-family residence (SFR) in a majority of the U.S. However, for an SFR in designated high-cost areas the conforming loan limits may be as high as $822,375 in states such as Alaska, Hawaii and parts of California.
This amount is single-family units only – duplex, triplex, four-plex limits are larger and also differ based on the state. If the sum of money you want to finance is higher than the conforming set limit, your loan will automatically become a jumbo loan.
Jumbo Loan Rates
Due to more risk, it seems quite logical that lenders may offer higher interest rates on jumbo loans than a conforming loan due to more risk being involved. Although, mortgage market research reveals that interest rates on jumbo loans are not always significantly higher than conforming rates.
If we examine the current rate, the difference between conforming and non-conforming jumbo loans varies from only 0.25% – 1.00%, a 75 basis point spread. Actually, some jumbo loan lenders offer interest rates that are below other conforming mortgage rates.
