Are you planning to buy a luxurious house in Indiana 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. Simply put, a jumbo loan is a type of mortgage loan that’s used to finance loans that exceed the conforming loan limit.
What is a jumbo loan?
What exactly is a jumbo loan in Indiana? 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’re considering purchasing a home that requires financing beyond the CLL, then you’ll need to apply for a jumbo loan. Indiana 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 Indiana?
In Indiana, the conforming loan limit is $726,200 across all counties. For example, the conforming loan limit in Marion County is $726,200, so if the loan amount needed is even $726,201, it’s considered a jumbo loan.
Keep in mind that the loan amount is what determines whether or not you’ll need a jumbo loan, not the home price. So, if you were to put $50,000 down on a $750,000 home in Indianapolis, the mortgage would be $700,000, which is under the conforming loan limit 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 Indiana?
Borrowers must meet stricter requirements to qualify for a jumbo loan than they would for a conforming loan. Each lender may have different requirements or processes, but below are the typical requirements for borrowers seeking a jumbo loan in Indiana.
Higher credit score: When it comes to obtaining a jumbo loan, credit score requirements are typically more stringent than for conventional mortgages. It’s possible that some lenders may be willing to accept a lower score, a credit score of at least 720 is generally required to qualify for a jumbo loan. It’s essential to have a strong credit profile and a solid financial history to increase your chances of being approved for a jumbo loan.
Larger down payment: Jumbo loans typically require larger down payments than conventional mortgages. While the exact amount varies depending on the lender and the borrower’s financial situation, down payment requirements for jumbo loans can be as high as 20% or more. That said, some lenders may offer jumbo loans with down payments as low as 10%, provided the borrower meets certain credit and income requirements.
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): When applying for a jumbo loan, Indiana lenders typically look for a borrower with a debt-to-income ratio (DTI) below 43%. Ideally, a DTI closer to 36% or lower is preferred. The DTI is calculated by dividing the sum of all monthly debt payments by gross monthly income. A lower DTI signifies a borrower’s ability to manage their current debt load while taking on additional mortgage payments. It also indicates greater financial stability and the ability to make on-time payments towards their non-conforming loan.
Additional home appraisals: When you buy a home in Indiana, lenders will require a home appraisal to confirm that the property’s value is equal to or higher than the loan amount. In some cases, a lender may require an additional appraisal for a jumbo loan. In counties with very few comparable property sales, the cost of the appraisal may be higher than in markets with more frequent sales.