Every November, Fannie Mae announces the new conforming limits for 2018 just like they do every November. For the first time ever, there was a year-over-year increase of conforming loan limits. This was brought about by an increase of 6.8% in home prices.
The conforming loan limit for a single-family home in Davie is $453,100. In the so-called high-cost areas where the median home values are higher by 11%, the conforming loan limit will be adjusted to $679,650.
Many of the high-cost areas are found in the following States:
- New England
Anything that is above the conforming loan limits set by Fannie Mae is considered to be a jumbo loan. Jumbo loans normally carry a higher interest rate that ranges between 0.25% and 0.50%. This will depend on loan to value as well as credit.
The size of the borrower’s down payment influences the type of rates the borrower gets. A down payment that exceeds 20% has some of the best down payments.
The credit score is another factor. The borrower needs to have a credit score that is above 740.
One of the reasons why conforming loans are characterized by lower rates when compared to jumbo loans, is because of the secondary market.
Once a lender approves a conforming loan, they then sell it to Fannie Mae or Freddie Mac who then sell it on Wall Street.
Lenders sell conforming loans in order to free up money to fund new mortgage applications. Both Fannie Mae and Freddie Mac own up to two thirds of all conforming mortgages including those in high cost areas.
Qualifying for a Jumbo Mortgage
The qualification process for a jumbo loan is similar to the one borrowers go through when trying to qualify for a conforming loan.
Lenders will go through the borrower’s most recent pay stubs in a bid to verify their employment and income. They will also go through the lenders W2 forms for the last 2 years.
If the borrower is self-employed, or if they receive an amount that exceeds 25% of their gross annual income from other sources other than employment, lenders will require to see federal income tax returns.
The reason why lenders go through the tax returns is to see if there are any drastic drops in earnings. A consistent track record is a good sign to lenders whereas a precipitous drop in earnings might require the borrower to offer an explanation to the lender.
To verify employment, the lender gets in touch with the borrower’s employer. The lender will seek other information from the employer as well. For instance, length of time the borrower has been with the employer.
The lender also requires bank statements from the borrower in order to ensure that the borrower has a sufficient bank balance to meet closing costs, fees, as well as make a down payment.
In addition to closing costs and down payments, borrowers will need to demonstrate that they have additional funds in non-liquid or liquid accounts totaling 3 – 12 months of mortgage payments.
This money is known as cash reserves and how much of it is needed will depend on the loan amount.
Jumbo Loan Down Payment Options
Since jumbo loan interest rates can be adjusted based on the equity in the transaction, the best rates are reserved for borrowers who are willing to make a down payment of 20% or more.
Once a down payment is made for purposes of financing a property, the home’s equity is no longer considered liquid.
In some cases jumbo loan borrowers might prefer to make a lower down payment that is less than 20% of the property’s purchase price. The borrower might want to keep their money. In such situations, the money can be put in an investment portfolio where it will earn dividends and interest.
However, this presents a challenge. If the down payment made is less than 20% of the home’s purchase price, the lender will require that the borrower take private mortgage insurance.
If you are a homeowner you know that there are numerous refinance programs that are available to you. These programs can be of great benefit to homeowners that want to move from an adjustable rate to a fixed rate or reduce their payment. For those that have available equity in their homes, they can try the many cash out programs that are available.
If you are a jumbo homebuyer in today’s market you can benefit from the numerous financing options that exist. It used to be the practice that jumbo homebuyers would have to make a down payment of between 20% and 25%, but this is no longer the case. Click here to read the difference between jumbo loans and other loan options. Borrowers who are looking for Davie jumbo loans are able to enjoy the many options that exist that preserve a buyer’s cash while making competitive financing options available.