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You might associate jumbo loans with mansions that have as many bathrooms as bedrooms. But with property values continuing to climb, you may want to learn more about what jumbo loans have to offer.

A loan is jumbo if the mortgage exceeds the limit for government-sponsored loans from Fannie Mae and Freddie Mac. In 2022, the limit in most states is $647,200 for a single-family home. In high-cost markets across the country, such as the Northeast, the West Coast and Alaska and Hawaii, the limit is $970,800.

Pros of Jumbo Loans

Also called non-conforming loans, jumbo loans make it more convenient to finance higher-price homes than in the past. Previously, home buyers were required to split the total cost of their primary residence, second home or investment property among multiple mortgages to comply with loan limits.

Much like other types of mortgages, jumbo loans are offered with fixed interest rates or adjustable rates and for terms up to 30 years.

Another advantage of jumbo loans is that depending on your circumstances, the lender may not require private mortgage insurance (PMI), even if your down payment is less than 20%. You would need PMI in that situation with most other home loans.

Cons of Jumbo Loans

One potential disadvantage of jumbo loans is that they are harder to qualify for since the lender is assuming a bigger risk with the larger loan. In general, you may be required to have:

  • Credit score of 700 – 720 (credit score of 620 is acceptable for other home loans)
  • Down payment of 10% – 20%
  • Cash reserves equal to 6 to 12 months house payments
  • Debt-to-income ratio about 38%

You may be required to submit more detailed financial information to qualify for a jumbo loan, including full tax returns, bank statements and W-2s. The property appraisal may be more expensive as well.

Lenders can set their own requirements, so consider these as guidelines and shop around for a lender that considers a complete picture of your current financial situation. Find a lender who knows there’s more to your story than a credit score and bank account.

Not all lenders offer jumbo loans. Be sure to find a lender with the right experience to make your application and approval process as smooth as possible.

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