Jumbo Mortgages

Overview

Jumbo mortgages are home loans for amounts which exceed the conforming loan limit. For this reason, jumbo loans are sometimes called non-conforming loans. The conforming loan limit is set by the Federal Housing Finance Agency (FHFA), the agency which regulates Fannie Mae, Freddie Mac, and the Federal Home Loan Bank system. Here in Los Angeles County, the conforming loan limit is currently $625,500. In most other respects, jumbo mortgages are similar to conventional mortgages.

With median home values in L.A. approaching $600,000 and a majority of homes in areas such as Rancho Palos Verdes, Rolling Hills, Redondo Beach, Hermosa Beach, and Manhattan Beach exceeding $1M, jumbo loans are fast becoming the “new normal” for some area home buyers.

Requirements

Jumbo mortgages entail a number of risks for lenders; these loans are not federally backed, involve larger sums, and are frequently tied to luxury real estate, which can be costly and time-consuming to sell. As such, qualification requirements are fairly conservative, and these loans are generally only available to borrowers with good to excellent credit and sufficient verifiable income.

Benefits

The primary benefit of a jumbo loan is the ability to borrow more than is possible with other types of loans. With the median home value approaching $600,000 in Los Angeles, many mid-level homes, luxury condos, and executive homes are priced from $750,000 to $1.5 million or more, making a jumbo loan in excess of $625,500 a necessity for many home buyers. Because jumbo mortgages are not federally backed, lenders are free to develop their own credit history, debt-to-income ratio, and down payment requirements.

Limitations

The most notable limitation of jumbo mortgages is having sufficient income to qualify for the loan. Lenders also typically want home buyers to have greater financial reserves after the closing: 12 months of reserves vs. 6 months for conventional mortgages. Jumbo mortgage rates can sometimes be higher than conventional mortgage rates, but this isn’t always the case.