When a home buyer or existing homeowner takes out a mortgage to purchase or refinance a home, they are often taking out either a conventional (meaning Fannie Mae or Freddie Mac) or FHA mortgage. This is all well and good, but these mortgage types have limits as to the dollar amounts that can be had, and the limits vary in different parts of the country.
In 2020, the Fannie Mae limit, also called a conforming limit, is between $510,400 and $765,600.
The range for FHA mortgages is $331,760 to $765,600, and the numbers quoted above are for one-unit properties. Limits are higher for 2-4 unit properties.
However, people in many parts of the country (specifically, on both coasts) live in areas where loan amounts far exceed these limits.
What people looking to finance properties in these areas do is take out what are called jumbo loans. These jumbo loans look similar to traditional mortgages in that they offer 10-, 15-, 20- and 30-year terms and are available in fixed and variable rate versions.
How jumbo loan borrower profiles differ from the traditional borrower profiles includes the debt-to-income ratios. They are lower with a jumbo loan, meaning that a lower percentage of income may be used to put toward the house payment.
Some lenders will also require two appraisals to make sure that the property is worth what they think it is worth.
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