What is a jumbo loan and do I need one?

Conforming loans are mortgages that meet Fannie Mae and Freddie Mac guidelines, making them easier for lenders to sell on the secondary market. The conforming loan limit is adjusted annually based on home prices. In high-cost areas, the limit can be higher. In South Jersey, the standard conforming limit applies. Loans above this limit are called jumbo loans because they are too large to be sold to Fannie Mae or Freddie Mac. Because lenders hold these loans on their books or sell them differently, they have stricter qualification requirements. Jumbo loans typically require a minimum credit score of 700 to 720, a down payment of at least 10% to 20%, cash reserves of six to twelve months of mortgage payments, and lower debt-to-income ratios. Documentation requirements are also more thorough. Self-employed borrowers may need additional income verification. While jumbo loans used to carry significantly higher rates, the gap has narrowed. In some cases, jumbo rates can be competitive with conforming rates, especially for well-qualified borrowers with large down payments.