I need a jumbo mortgage in order to buy in New York City. I've heard there's a new threshold for this kind of loan in 2021. What exactly has changed, and what do I need to do to qualify?
In pricey cities like New York, jumbo loans aren't just for luxury properties. Many buyers may have to take out jumbo loans, which are mortgages that are too large to qualify under guidelines set by Fannie Mae and Freddie Mac. (Check out Brick's explainer on this type of loan.)
There are additional requirements for buyers taking out jumbo loans, and with rates expected to rise and lenders tightening their standards, borrowers may face more hurdles in the coming months. Unlike with typical mortgages, which require buyers to demonstrate two months of funds to cover mortgage payments and other expenses, jumbo loans require buyers to show they can cover these payments for six months.
"The reserve requirement for jumbo loans is six months reserves for qualifying mortgage payment, insurance, taxes and HOA dues," says Mary Alex Blanton, vice president of National Cooperative Bank (a Brick sponsor). "The requirement for conforming loan limits remains the same at two months. There is a pricing difference between a conforming and jumbo loan, generally an additional .25-.375 percent add-on."
Buyers also face specific requirements for their down payment, with most lenders preferring borrowers put down at least 20 percent. In addition, buyers must meet qualifications for their debt-to-income ratio (that is, the percentage of their income that goes toward paying off debts) and post-closing liquidity (liquid assets available after down payment and closing costs.)
"Borrowers have to meet maximum debt to income requirements. The standard is up to 35% debt to income but some lenders go higher," says Deanna Kory, a broker with Corcoran. "They also have to have a minimum post-closing liquidity—the lowest is 12 to 24 months of post-closing liquidity."
Remember that before you commit to any one lender, it's a good idea to shop around—especially if you're taking out a sizable mortgage.
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