Posted: 2020-10-30 | Author: Scott Roberts
When someone is purchasing an expensive property that exceeds the conforming loan limits, they would need to apply for a jumbo loan. In Arizona and most of the US, the current conforming loan limit (for a conventional mortgage) is $510,400. It was just announced that this limit will increase by 7.5% to $548,250 in 2021. This is for the amount of the mortgage, not the overall price of the property.
The conforming loan limit is set by Fannie Mae and Freddie Mac, the federal agencies that back the bulk of residential mortgages in the US., and it changes regularly based on the fluctuation in property values. Although most of the country currently has a limit of $510,400, there are more than 200 counties in the US that are considered high cost regions (e.g., counties in New York City, LA, the SF Bay area, etc.); in these areas, the conforming limit could be as high as $765,600.
How do Jumbo Mortgages Work?
Nonconforming (jumbo) mortgage rules are different from those for conventional mortgages in some significant ways. This mostly stems from the fact that lenders are risking a lot more when they issue a jumbo loan.
With jumbo mortgage limits that can range from $3 million-$5 million for a single property, this could amount to as much as 10 times the risk (or more) of underwriting a conventional loan. In addition, lenders cannot readily sell their jumbo loans to Fannie Mae or Freddie Mac, meaning they might have to carry them on their own balance sheet. Larger properties can also be harder to sell off in the event of a foreclosure, which increases the risk even further.
With much more at stake, lenders have a strong vested interest in ensuring that borrowers have the capability to pay back a jumbo loan. For this reason, lenders will look far more closely at each borrower’s history and circumstances, and there will be more stringent requirements to qualify for this type of mortgage:
Arizona Jumbo Loans
Currently, Arizona does not have any counties that are considered high cost or competitive areas, so $510,400 is presently the conforming loan limit for the entire state. Loan limits and requirements for jumbo loans in Arizona will vary by lender, with some limits as low as $2 million and others as high as $5 million or more. As mentioned earlier, jumbo mortgage lenders will typically look for a higher credit score, lower DTI ratio, larger down payment, and sufficient documentation of income and assets. Some Arizona jumbo loan programs allow first-time buyers, and some programs allow a non-occupant cosigner on the loan. Investment properties are usually eligible as well.
Jumbo Mortgage Rates
In Arizona, a borrower can expect to pay roughly a quarter point or so higher on average for a 30-year fixed rate mortgage on a jumbo loan versus a conventional loan. These rates may vary a little more widely on 15-year and 20-year fixed rate loans and other types of mortgages. Overall, jumbo mortgage rates are generally pretty close to conventional rates, and in some cases, a well-qualified borrower might even be able to get a slightly lower rate.
Speak with your Local Phoenix Area Jumbo Loan Expert
Jumbo mortgages are products for high-end borrowers that are much riskier for lenders than conventional mortgages. Because lenders scrutinize these loans more closely, processing times can sometimes be significantly longer than with conventional mortgages. With this type of product, it is especially helpful to work with a local lending specialist who can thoroughly analyze your situation, find you the right mortgage to fit your needs, and help ensure smoother processing.
For example, when someone goes directly to a large bank or lender, it can sometimes take 90 days or longer for the loan to get approved. At AZ Lending Experts, we can usually get the loan done in as little as 30 days, which gets you into your desired property much faster. For more information on jumbo loans in Arizona, contact us today for a free, no obligation consultation.