For many individuals and families, owning a home is a lifelong dream. However, with rising real estate prices, some may find themselves seeking financing beyond the conforming loan limit. In this instance, you’d need to apply for a jumbo loan. So whether you’re planning to buy a new construction home in Bozeman or a vacation home in Whitefish, let’s break down what a jumbo loan is, the 2023 conforming loan limits for Montana, and what’s needed to qualify for this type of loan.
What is a jumbo loan?
What exactly is a jumbo loan in Montana? A jumbo loan is a specialized type of mortgage that comes into play when you’re seeking financing for a home that surpasses the conforming loan limits (CLL) established by the Federal Housing Finance Agency (FHFA). Typically, this type of loan is necessary for upscale, luxurious properties or those situated in pricey housing markets.
If you need to borrow more than the conforming loan limit, you’ll need a jumbo loan. Montana jumbo loans allow you to borrow more money to buy a more expensive home, but they also come with higher interest rates and stricter requirements than conventional loans.
What is the jumbo loan limit in Montana?
In Montana, the conforming loan limit is $726,200 across all counties. For example, if you’re buying a home in Gallatin County, where the median sale price is $725,000, a loan limit exceeding $726,200 would be considered a jumbo mortgage.
As a reminder, the loan amount 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 Gallatin County, the loan would be $680,000, which is under the conforming loan limit for this area. In this case, your loan wouldn’t be considered a jumbo loan.
For more information on the conforming loan limit in your county, use the FHFA map.
What are the requirements for a jumbo loan in Montana?
To qualify for a jumbo loan in Montana, borrowers must meet stricter requirements than they would for a conforming loan. The specific requirements may vary from lender to lender, but below are the typical requirements for borrowers seeking a jumbo loan.
Higher credit score: In order to have your loan application approved for a jumbo mortgage, most lenders will require a credit score of 720 or higher. While some lenders may be more lenient and accept a score as low as 660, a score below this is generally not accepted. In contrast, a credit score as low as 620 could suffice for a conforming loan with some lenders.
Larger down payment: Obtaining a jumbo mortgage typically requires a larger down payment compared to a conventional mortgage. Lenders may require a down payment of 10% to 20% or more, depending on the specific loan program and the borrower’s financial situation. If you’re approved with a down payment less than 20%, keep in mind you’ll most likely be required to purchase private mortgage insurance (PMI).
More assets: Jumbo loan lenders generally require borrowers to demonstrate a strong financial profile, including substantial liquid assets or savings. To qualify for a jumbo loan, borrowers must have enough reserves to cover at least one year of mortgage payments. This requirement ensures that borrowers have the financial flexibility to meet their loan obligations in the event of a financial hardship.
Lower debt-to-income ratio (DTI): To qualify for a jumbo loan in Montana, a mortgage lender will typically look for a debt-to-income (DTI) ratio of no higher than 43%, and ideally closer to 36%. The DTI is calculated by dividing the sum of all monthly debt payments by the borrower’s gross monthly income. This requirement ensures that borrowers have a strong ability to repay their loan and manage their debt.
Additional home appraisals: Your mortgage lender may require a second home appraisal as an extra layer of protection when it comes to jumbo loans. The second appraisal serves as an additional opinion to ensure the property’s value aligns with the loan amount. In places with limited comparable property sales, this extra appraisal may cost more than in neighborhoods with more frequent sales.
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