What’s the skinny on jumbo loans?
This week’s column was guest written by Wayne Post of CENTURY 21 Parker & Scroggins Realty in Benton.
Let’s talk about conforming loans versus jumbo loans in the mortgage world.
Each October, the Federal Housing Finance Agency collects data on the national median home value and compares that number to the previous year.
If there is an increase, the conforming loan limit will increase by the same amount.
In 2019, the year-over-year median home value increase was 5.38 percent. Therefore, the conforming loan limit for a single-family home in 2020 will rise to $510,400, up from $484,350.
The loan limits on multiunit properties will rise to $653,550 for a duplex, $789,950 for a triplex and $981,700 for a fourplex.
Loan amounts at or under these limits qualify as conforming loans because they conform to guidelines set forth by Fannie Mae and Freddie Mac. Conforming loans make up the majority of residential loans funded.
Loan amounts that are above these limits are referred to as jumbo loans. With a conforming loan, lenders are able to sell the mortgage in the secondary market, replenishing their credit lines in order to make more loans.
Jumbo loans have no such robust secondary market. When a lender approves a jumbo loan, it assumes the risk should the loan ever go into default. Naturally, this makes it more difficult to qualify for a jumbo loan.
The minimum credit score for most conforming loans ranges from 580 to 620. Jumbo minimums range from 720 to 740.
Some jumbo loans can require a lower score, but the rates and terms are much more stringent.
Down-payment requirements for jumbo loans are also much higher. A buyer can secure a conforming loan with a down payment of just 5 percent (or even 3 percent for special first-time programs) with the help of private mortgage insurance.
Jumbo loans have no such insurance policies available and require a minimum down payment of 20 percent of the sale price of the home. Providing a down payment of 25 percent or more will make it easier to qualify.
House to House is distributed by the Arkansas Realtors Association. For more information about homeownership in Arkansas, visit ArkansasRealtors.com.
When a lender approves a jumbo loan, it assumes the risk should the loan ever go into default.”
Wayne Post, CENTURY 21 Parker & Scroggins Realty in Benton