The California Association of Realtors is reporting that the number of jumbo loans being taken out throughout the state is on the rise, with California being the biggest lending state in terms of jumbo mortgages. Not only does the state lead with the number of jumbo loans that are made each year, but it is also in the lead in terms of the dollar amount that is loaned in the form of jumbo loans. If you are interested in purchasing a luxury home in the state, learning more about jumbo loans will be a key step in acquiring the home you desire.
Understanding Jumbo Loans
A jumbo loan is a type of loan that exceeded the government standards that is established by Fannie Mae and Freddie Mac, which are both government-sponsored enterprises that purchase mortgage from lenders. In most parts of the country, this limit is set at $417,000. In the highest-cost parts of the country, such as California, this cap is set at $625,000. Of the approximately 3,300 counties in the country, approximately 100 of them are eligible for the high-cost limit of $625,000. In approximately 90 other counties, the limit is set higher than the minimum of $417,000, but is less than the max of $625,000. Regardless of the cap in your county, you will need to take out what is referred to as a “jumbo” loan if you wish to borrow more than the established amount.
Obviously, if you are purchasing a home that is more than $625,000, you can avoid taking out a jumbo loan if you simply increase the amount of your down payment. After all, a jumbo loan is not issued based on the cost of the home, but on the amount of the loan.
Jumbo Loans in California
Due to the high price of housing in California, many banks offer special financing options to buyers who are interested in purchasing homes of $2 million or more. If they were not able to offer jumbo loans, many lenders would not be able to successfully conduct business in the state. Bank of America, for example, said that 50 percent of hits jumbo loan lending took place in California with many borrowers opting for a 15 percent down payment on loan amounts of up to $1 million. Furthermore, the dollar volume from January through August of this year increased by 20 percent when compared to last year.
Qualifying for a Jumbo Loan
To qualify for a jumbo loan, you need to complete the same steps as with applying for a standard loan. Some of the requirements for being approved are different, however, as the down payment needs to be larger and your credit score typically needs to be at least 700. There will also be stricter requirements in terms of demonstrating your ability to pay back the loan, with the maximum debt-to-income ration being 45 percent. In addition, you will need to have at least six months worth of reserves in your bank account after closing on the house. By contrast, standard loans require just one or two months. On the plus side, the rates on jumbo loans tend to be lower and interest on loans of up to $1 million is tax deductible.
To learn more about luxury housing options in Southern California, contact our team of real estate experts. We specialize in the most exclusive neighborhoods in the region.
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(all data current as of 7/24/2017)
Listing information deemed reliable but not guaranteed. Read full disclaimer.