When it comes to purchasing a home, buyers may find it difficult to find financing beyond the conforming loan limit. In this instance, you may need to apply for a jumbo loan. Whether your sights are set on a riverfront condo in Minneapolis or a home in St. Paul, join us as we break down what a jumbo loan is in Minnesota, the 2023 conforming loan limits, and what’s needed to qualify for this type of loan.
What is a jumbo loan?
In Minnesota, a jumbo loan is a type of mortgage used to finance a property that exceeds the conforming loan limits set by the Federal Housing Finance Agency (FHFA). Jumbo loans are typically necessary for expensive homes or properties in high-priced housing markets. These loans are specialized and designed to accommodate larger amounts of borrowing for upscale and luxurious properties.
If the home you’re purchasing will require you to borrow more than the conforming loan limit (CLL), you’ll need to apply for a jumbo loan. It’s important for homebuyers to understand the requirements and implications of obtaining a jumbo loan in Minnesota. For instance, borrowers typically need a higher credit score and a larger down payment to qualify for a jumbo loan.
What is the jumbo loan limit in Minnesota?
In Minnesota, the conforming loan limit is $726,200 across all counties. For example, the conforming loan limit in Hennepin County is $726,200, so any mortgage that surpasses the loan limit designated for your county by even one dollar is classified as a jumbo loan.
Keep in mind that the amount being borrowed is what determines whether or not you’ll need a jumbo loan, not the price of the home. So, if you were to put $100,000 down on a $780,000 home in Bloomington, the loan would be $680,000, which is under the conforming loan limit for this area. In this case, you would not need a jumbo loan.
You can find more information on the conforming loan limits specific to where you’re looking to buy a home in Minnesota by using the FHFA map.
What are the requirements for a jumbo loan in Minnesota?
The requirements to qualify for a jumbo loan are more stringent than the requirements for a conforming loan. Each lender may have different requirements or processes, but below are the typical requirements for borrowers seeking a jumbo loan.
Higher credit score: To qualify for a jumbo mortgage, borrowers typically need to have a credit score of at least 720. However, some lenders may be willing to accept scores as low as 660, although less frequently. A higher credit score demonstrates a borrower’s ability to manage credit responsibly and is a crucial factor that lenders evaluate when reviewing jumbo loan applications.
Larger down payment: When applying for a jumbo loan, keep in mind that down payment requirements are generally more substantial than for conventional loans. While the specific amount will depend on the lender and the borrower’s financial situation, many jumbo loan lenders require a down payment of at least 10%, and some require as much as 20% or more.
More assets: Jumbo loan borrowers are typically required to have additional assets. In particular, lenders may require borrowers to demonstrate sufficient liquid assets or savings to cover one year’s worth of loan payments.
Lower debt-to-income ratio (DTI): When applying for any type of mortgage, lenders evaluate your spending habits and creditworthiness by analyzing your debt-to-income ratio (DTI). The DTI is determined by dividing the total of your monthly debt payments by your gross monthly income. While some lenders may accept a DTI as high as 50% for a conforming loan, those applying for a jumbo mortgage should aim for a DTI under 43% and ideally closer to 36%.
Additional home appraisals: For a jumbo loan, a mortgage lender may require a second appraisal to ensure that the property’s value is accurate. This is particularly true in places where there are few comparable property sales. The second appraisal acts as a second opinion and helps the mortgage lender to mitigate their risk. It’s important to note that the cost of a second appraisal may be higher than a typical home appraisal, particularly in areas with fewer sales.
This post first appeared on Redfin.com. To see the original, click here.