Are you planning to buy a luxurious house in Delaware or a home in an expensive market this year? If so, you might be wondering what a jumbo loan is and whether it’s right for you. Whether you’re looking to buy a home in Wilmington or a townhome in Middleton, let’s break down what a jumbo loan is in Delaware, the 2023 conforming loan limits, and what’s needed to qualify for this type of loan.
What is a jumbo loan?
Jumbo loans in Delaware are a specialized type of mortgage that allows homebuyers to finance higher-priced properties that exceed the conforming loan limits set by the Federal Housing Finance Agency (FHFA). These loans are designed to meet the financing needs of luxury homes and properties located in high-cost areas.
If the loan amount needed to buy the home is more than the conforming loan limit (CLL), you’ll need a jumbo loan. However, because of the larger loan amounts and the risk involved, jumbo loans often come with stricter requirements and higher interest rates than conventional loans. Lenders typically require a larger down payment, higher credit score, and more assets on hand to qualify for a jumbo loan in Delaware.
What is the jumbo loan limit in Delaware?
In Delaware, the conforming loan limit is $726,200 across all counties. For example, if you’re buying a home in Sussex County, where the median sale price is $465,000, a loan limit exceeding $726,200 would be considered a jumbo mortgage.
As a reminder, 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 $50,000 down on a $750,000 home in Milton, the loan would be $700,000, which is under the CLL for this area. In this case, your loan wouldn’t be considered a jumbo loan.
This FHFA map will give you more specific information related to the conforming loan limits in your county.
What are the requirements for a jumbo loan in Delaware?
The requirements to qualify for a jumbo loan are more stringent than the requirements for a conforming loan. The specific requirements can vary from lender to lender, but below are the typical requirements for borrowers seeking a jumbo loan.
Higher credit score: In order to be eligible for a jumbo mortgage, lenders generally expect borrowers to have a credit score of at least 720. While some lenders may consider a score as low as 660, a credit score of less than that is typically not accepted.
Larger down payment: Jumbo loans are a popular financing option for homebuyers looking to buy high-value homes. However, compared to conforming loans, jumbo loans typically require a larger down payment. While the exact amount varies depending on the lender and the borrower’s financial profile, down payment requirements for jumbo loans can be as high as 20% or more. It’s worth noting that putting down a larger sum upfront can often help borrowers secure a better interest rate on their jumbo loan.
More assets: Jumbo loan borrowers are typically required to have more assets than those seeking conventional loans. Lenders will review a borrower’s assets to ensure they have enough liquid assets or savings to cover at least one year of loan payments. This requirement is in place to mitigate the increased risk associated with larger loan amounts.
Lower debt-to-income ratio (DTI): A lender will typically require a debt-to-income ratio (DTI) of under 43% for jumbo loan borrowers, although a DTI closer to 36% is preferred. This ratio is calculated by dividing the sum of all monthly debt payments by the borrower’s gross monthly income. A lower DTI indicates a stronger ability to repay the loan and can help applicants secure more favorable terms and rates. It’s important for Delaware borrowers seeking a jumbo mortgage to have a clear understanding of their DTI and take steps to improve it if necessary.
Additional home appraisals: For a jumbo loan, lenders may require an additional home appraisal as a second opinion, especially if the property is located in an area with few comparable sales. This is to ensure that the home is worth the loan amount or more and to mitigate the lender’s risk. The cost of the appraisal may also be higher in counties with limited property sales.
This post first appeared on Redfin.com. To see the original, click here.