The real estate market is filled with variables that change from month to month, or at times from day to day. Securing a mortgage loan in this climate can be intimidating where smart buyers must constantly adjust to shifting trends in the housing market to get the right loan for their situation. A common question we get at Sammamish Mortgage is whether a borrower should pursue conforming financing or consider other mortgage loan options like a jumbo loan or balloon loan.
The following tips will help you learn exactly what a jumbo loan is and if it’s the right type of mortgage loan for you.
1) What is a Jumbo Loan?
In Washington State, jumbo loans are determined by the size of the loan. Any loan amount greater than the conforming loan limit as authorized by Congress and signed into law by the White House is considered a jumbo loan. The official 2016 standard conforming first mortgage loan size limits by property type are: (Updated for 2017)
- 1-unit properties : $424,100
- 2-unit properties : $543,000
- 3-unit properties : $656,350
- 4-unit properties : $815,650
The exception to these limits in Washington State are the High Balance Conforming or Conforming Jumbo limits in King, Pierce and Snohomish counties that allow loan amounts up to $592,250 for 1 unit properties and San Juan County which goes up to $483,000.
Since the loan amount on jumbo loans is above the conforming loan limit, these are loans that are not guaranteed by government secured agencies like Fannie Mae and Freddie Mac. In light of this, jumbo loans are riskier to lenders and with that risk, comes a stricter set of underwriting criteria.
2) What Are The Qualifications For A Jumbo Loan in Washington?
Prior to the housing bubble, lenders saw jumbo loans as an opportunity to compete for new business in the booming real estate market. From 2003-2007, jumbo loans were readily secured without income verification and as little as 5% down. Needless to say, this reckless lending left several homeowners in distress with mortgages that exceeded their capacity to repay the lenders. A jumbo loan today involves stricter underwriting and those hoping to qualify for a jumbo loan in Washington State should expect to:
- Document your income.
- Put down at least 20 percent of the purchase price (or more on properties valued above $1,000,000).
- Maintain a debt to income ratio where your monthly debt obligations stay below 43% of your monthly income. (As low as 36% on some programs).
- Have a credit score over 700 in most cases.
The most popular jumbo loans is a 30 year fixed; however, 5/1, 7/1 and 10/1 ARMs (Adjustable Rate Mortgages), which have retain their introductory rate for the first 5, 7 or 10 years of the loan term are increasingly available as well. After the fixed rate period on an ARM, the mortgage rate is adjusted annually (usually in relation to the 1-year LIBOR).
3) Is Now A Good Time To Pursue A Jumbo Loan?
If you qualify for a Washington jumbo loan, the real estate market is favorable right now. At the height of the housing crisis, lenders were scarred by the inability of borrowers to make good on jumbo loans and reacted by raising rates as much as 2 or 3% over conventional financing options. Since that time, the market for jumbo loans has recovered and the “old way of doing things” is again the norm. Lenders have responded with rates today that are as little as .125 to .5% higher than rates on conventional loans with excellent credit. This means it’s a great time to look for the home of your dreams if you’re a borrower who qualifies for a jumbo loan in Washington State.
Have questions? Sammamish Mortgage is a local, family-owned company based in Bellevue, Washington. We serve the entire state, as well as the broader Pacific Northwest region. Please contact us if you have mortgage-related questions.