Jumbo Loans: What You Need to Know

Did you know that 900,000+ homes were sold in the U.S. in July 2020? Whether you’re looking for a home or other property, sometimes a regular loan won’t be enough. 

In this article, explore a jumbo loan in Texas and why many are choosing it. Read on to explore more about this beneficial loan to help make your dream property come true. 

What Is a Jumbo Loan in Texas? 

It’s a conventional mortgage loan that’s larger than the size limit for Fannie and Freddie. Fannie and Freddie are the 2 government-sponsored enterprises that sell and buy bundled mortgage loans. 

Most mortgage programs have size restrictions. It’s also true for FHA and VA loans as well. If you choose a conventional loan, that means it’s not insured or backed by the federal government. 

While VA and FHA loans are backed by the federal government. If a loan amount is larger than the size limits, then it’s known as a jumbo loan. 

Conforming Loans vs Jumbo Loans

The difference between a jumbo loan limit and a conforming loan is the size. Jumbo loans also normally require 20% down, whereas conforming loans can require lower down payments. Some lenders will go down to 10% for jumbo loans though.

While jumbo rates can be higher than conforming loans, many lenders will offer you jumbo loan interest rates at a competitive amount. Some lenders will offer you lower rates depending on the current market conditions. As time goes on, the difference in interest rates between the 2 is becoming closer.

How Does a Jumbo Loan Work? 

You can receive a jumbo loan in various terms or repayment schedules, similar to conventional mortgages. You can also choose from adjustable or fixed-rate loans as well. 

Keep in mind that jumbo loans have more requirements than conventional mortgages. You’ll need to meet the down payment, debt-to-income ratio, and property type requirements in order to qualify. 

Constant Income

Many lenders will require you to have regular and predictable income. For a conventional loan, they might ask for up to 2 years worth of tax documents, 1099s, and W-2s. For a jumbo loan, the lender might ask you for proof and documentation of your income as well. 

What Property Types Can I Buy? 

There are various choices of property types with a jumbo loan in Texas. There aren’t government restrictions for how you can use your jumbo loan. 

It can include investment properties, vacation homes, or primary residences. Not all lenders will offer this type of loan, so it’s best to find a lender who specializes in jumbo loans. 

Conventional Mortgages

These are mortgages that are offered by financial institutions and banks. They require an income level, debt-to-income ratio, credit score, and down payment just as with a jumbo loan. While jumbo loans are non-conforming, conventional mortgages can either be non-conforming or conforming. 

Conforming vs Non-Conforming Loans

Non-conforming loans are when they can’t be sold by Fannie Mae or Freddie Mac. This is when a loan goes above the loan limit (such as a jumbo loan). 

You’ll often find that non-conforming loans are known as unconventional loans. Conforming loans are when Fannie Mae or Freddie Mac are able to purchase the loan. 

When you receive a loan, the lender rarely keeps it. After it’s funded by a lender, it’s often sold to Fannie Mae or Freddie Mac. The main difference between conforming vs non-conforming is the amount of the loan. 

What Are Fannie Mae and Freddie Mac?

Fannie Mae and Freddie Mac were first created by Congress. They provide affordable, stable, and liquid options to the mortgage market. Liquidity means access to funds. 

They buy mortgages from lenders and either keep them in their portfolio or place them into mortgage-backed securities that can be sold. 

Jumbo Loans in the Housing Market

Jumbo loans in Texas are often used for buying luxury or high-end properties. Since conforming loan limits are set higher in particular counties, it allows homebuyers to have plenty of properties to choose from. 

How Is the Dallas Housing Market Right Now?

If you’re back and forth about buying a home, you’ll want to act quickly because the market is competitive right now. You’ll find that some homes sell in as little as 18 days. 

Understanding FHA and VA Loans

VA and FHA loans are available for borrowers, but they each differ. VA stands for Veterans Administration and is only for those who have served or are serving in the military. There aren’t income requirements for a VA loan since the government lends the money directly. 

For an FHA loan, the property must be FHA-approved. While you only need to put 3.5% down with an FHA loan, you’ll be stuck with PMI (private mortgage insurance). 

What Is PMI?

PMI stands for private mortgage insurance and can be avoided by placing 20% or more down. If you go with a conventional loan, you might be required to pay for it. 

It’s a way for the lender to be protected in case you default on your loan. It’s created by private insurance companies for the lender. The most common way it’s paid is by having it taken out every month along with your mortgage. 

Getting a Jumbo Loan in Texas

Now that you’ve explored all about getting a jumbo loan in Texas, you should have a better idea why many are choosing it. Are you ready to get a jumbo loan? Contact us today, and we’ll go over your different loan options to pick the right loan for your needs. 

 

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