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Non Conforming Loan

Jumbo Loans

Jumbo loans, or a non conforming loan, is typically needed when a home loan exceeds the “conforming limits” put in place by Freddie Mac and Fannie Mae sometimes referred to as “the agencies”. The conforming limit is higher in counties with higher home prices, so check here to see the most recent limits by county or contact us and we can talk you through limits.

Since the Jumbo Loan amounts exceed the “conforming limits” – this non conforming loan is viewed to be riskier – jumbo lenders usually have stricter requirements. As a result, a jumbo mortgage approval often requires the borrower(s) to have more income, higher credit scores and greater reserves (ex: assets like savings).

Borrowers should be prepared to prove reserves that can cover between 6 and 12 months’ worth of mortgage payments. The typical down payment on a non conforming loan ranges between 10 and 20 percent. Any lower, and the interest rate will likely go up.

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Things to Know Before Going with a Jumbo Loan

The rates on a jumbo non conforming loan may be higher or lower than the conforming mortgage rate so make sure to speak with an expert before deciding to go with a Jumbo Loan.

Getting a Jumbo loan can be a convenient way to finance property, but it’s also possible to get two conforming loans (this is often called an 80-10-10* loan or a piggyback loan) to finance a home that would otherwise require a single Jumbo Loan…thus getting around the stricter Jumbo requirements. The common case here, is borrowers who qualify for a large loan amount in based on income and credit BUT lack the larger down payment amount for jumbo loans.

*The 80-10-10 refers to the initial loan being 80% of the home’s value, the piggyback loan being 10%, and then the down payment making up the final 10%. However, there can be variations like an 80-15-5 or 75-15-1.

Also important is the loan-to-value (LTV) ratio. This is the amount of the loan relative to the value of the home. Depending on the lender, a non conforming loan will have a maximum loan-to-value ratio…and furthermore, this ratio influences your interest rate. Again, navigating these criteria is best to do with an expert.

Non conforming loan