If you’re planning on purchasing a high-priced home and leveraging the majority of the money to pay for it, you’ll likely need a jumbo mortgage.

Almost 90% of mortgages are backed by either one of two major government-sponsored enterprises: Fannie Mae and Freddie Mac. Part of the remaining 10% are considered jumbo mortgages, a home loan option for expensive homes that approach the $1 million mark and beyond.

What is Considered a Jumbo Loan?

It’s helpful to first understand what conforming loans are. Fannie Mae and Freddie Mac guarantee mortgages as a means of freeing up liquidity for banks so these financial institutions can underwrite more loans to the average consumer. The mortgage needs to meet specific securitization guidelines and limits in order to get these government guarantees. Home loans within these limits are classified as “conforming” loans.

One of the most important requirements for a conforming loan is the amount of the mortgage. In most parts of the US, the limit for conforming home loans is $417,000 for a single-unit home. In certain high-priced markets, such as New York City or San Francisco, the limit jumps to $625,500.

Out of the 3,143 counties in the US, this is how the current loan limit is broken down:

• 2,916 counties have a cap of $417,000;
• 108 counties have a cap of $625,500;
• 115 counties have a cap that’s somewhere between $417,000 and $625,500 (these markets have home prices that are higher than average, but not as high as San Francisco, for example);
• 4 of the 5 counties in Hawaii have caps that fall somewhere between $657,800 and $721,050.

In general, any home loan that surpasses the above-mentioned limits is classified as a jumbo mortgage, and is typically used to buy an expensive home. These types of loans are considered “non-conforming” because they exceed Fannie Mae and Freddie Mac’s caps. These government agencies’ requirements don’t apply to jumbo mortgages, nor can they ever purchase them. Fannie Mae and Freddie Mac only buy loans that meet their guidelines for down payment, credit score, and loan size.

Getting Approved For a Jumbo Loan

Following the housing crisis in 2008, the requirements to get approved for a jumbo mortgage were pretty stringent, but jumbo approvals have become more lax and flexible these days.

For starters, down payments on non-conforming can now be as low as 10% for mortgage amounts of $1 million, as opposed to the minimum 20% that was required years ago. Not only that, jumbo loans don’t necessarily require mortgage insurance, unlike conforming loans.

However, borrowers will typically need to pay a slightly higher interest rate – usually about 0.25% higher – compared to conforming loans, and debt-to-income ratios for such low down payment jumbo loans must be between 30% to 36%.

If, on the other hand, at least 20% is put down, lenders may accept higher debt-to-income ratios. Your total monthly housing payment along with all your other monthly bills will be calculated. If it isn’t more than 43% of your income, you may still be approved.

Your credit score also plays a key role in your eligibility for a jumbo loan, just like it does with conforming loans. If your score is less than 680, you’ll have a tough time getting approved for any type of home loan.

Lenders typically like to see credit scores of at least 720 for borrowers applying for jumbo loans. Some banks want to see scores even higher than that. Of course, the higher your score, the better. If your score is at least 780, you’re almost guaranteed approval and the lowest interest rate.

Your reserves – or the money you’ve got left over after your mortgage closes – will be closely looked at by your lender. The requirements for jumbo loans are more strict compared to conforming loans.

Lenders will usually want to see 12 months of reserves after the mortgage closes – half of the money needs to be liquid, and the other half will be calculated from any of your retirement assets. If you’re putting a high down payment and have a low debt-to-income ratio, you may be exempt from this rule.

The Bottom Line

A jumbo loan just might be the ideal solution for your particular financial situation, especially if you’re looking at buying a pricey residence. It’s worthwhile to shop around for a jumbo mortgage, just like any other type of mortgage, to make sure you get the best rate and terms on your overall home loan package. Get yourself a trusted mortgage specialist who will do all that legwork for you. 

It’s a no-brainer: there are very few instances where you wouldn’t insert a home inspection clause in a contract to purchase a home. A property may look flawless on the surface, but you just never know what’s lurking in the attic or in the electrical panel. The best way to protect yourself from a potential money pit is to hire a home inspector to take an in-depth look at the property in question before you seal the deal.

But just because you’ve allowed the inspector to take the reigns to investigate any potential issues, that doesn’t mean you won’t have the chance to ask some very important questions.

Here are some things you should be asking your home inspector to make sure you’re in-the-know about what you’re dealing with.

1. May I see your home inspector license?

Professional inspectors have no problem with being asked this question, and should always have their license readily available to show their clients. In fact, they’re required by law to carry their licenses on the job. You want to make sure the person who is conducting the inspection is trained and licensed to do so, or else you’re wasting your money and are possibly leaving potential problems uncovered.

2. What does the inspection cover?

It should be noted that a home inspection is not exactly going to uncover every issue with a property. The only way to know for sure if there are any lingering problems with the property is if you physically rip out drywall and flooring.

Still, inspections can uncover many issues that you would likely not have noticed yourself. After all, you won’t be crawling around in the attic or climbing the roof at a showing. But while the majority of home inspectors follow a standard protocol, you should find out exactly what will be covered during your specific inspection.

It’s important to make sure that the inspection report meets all necessary requirements as set forth by your state, and complies with a recognized code of ethics. The report will be made available to you shortly after the inspection has been completed. If there are any areas of concern that you want to have inspected, ask. If the inspector does not cover these specific issues, ask for referrals to specialists who can conduct further inspections.

3. Who can you refer me to fix certain issues?

An honest home inspector will fill you in on whether someone will need to be hired to fix specific problems, or whether they are minor enough for you to fix them yourself. Many helpful inspectors will tell you where to go to, what to buy, how much the material will cost, and provide you with pointers on what to do. This type if information is really useful, as it will identify all the tasks are potentially DIY-type items.

For more complex repairs, your home inspector should be able to offer you referrals to the reputable electricians, plumbers, roofers, and contractors that you can get in touch with right away and get quotes from during the contingency period. Being armed with the cost of certain repairs that need to be done can help you negotiate with the seller. 

4. What repairs need to be done right away, and which ones can wait?

Many home inspection reports can be quite lengthy, and include what seems like a never-ending list of things that need to be done to bring the home up to par. This list can be overwhelming, but it doesn’t necessarily mean that all the tasks need to be done right away.

Ask your inspector to point out the repairs that need to be done immediately for safety’s sake, and those that are more minor in mature that can wait. That way, you can prioritize the work that you plan on doing, and budget accordingly.

5. How do you work that?

Many home inspectors are happy to show you how to work different systems on the property, including the breaker panel, thermostat, smoke detector, and emergency water shutoffs, just to name a few. For this reason alone, it’s worth it to be present during the home inspection.

6. How long will the major systems and structures last before needing replacement?

Systems like the furnace, hot water heater, roof, and appliances are expensive items. If they are nearing the end of their expected lifespan, you’ll be stuck paying for it.

For instance, a new roof can cost you a pretty penny; replacing the entire roof can cost anywhere between $5 to $8 per square foot, depending on where you live and the type of material being used. So, for 1,000 square feet of roof space, you can be looking at as much as $8,000 to replace the roof. That’s a big expense, and if you’ll have to cover this expense some time soon, you might want to negotiate that fact into the purchase price with the seller.

A big mistake that many buyers make during home inspections is failing to ask important questions. Inspectors expect questions; in fact, they welcome them. No question is too silly; the answers you get might actually come in handy for renegotiating a lower price.

The housing market in California has been characterized by sky-high prices, fierce competition, and affordability issues. While there are a few factors that have contributed to these scenarios, tight inventory is one of the biggest.

There simply aren’t enough homes in the state to accommodate for all the would-be buyers out there, which has forced many to continue to remain renters for longer than they would have liked. 

With low supply and high demand, it’s not hard to understand why prices are so high in many centers, and continue to rise. In fact, California is home to the country’s most expensive housing markets, keeping low- and moderate-income families out of the world of homeownership.

Median home prices in the San Francisco area currently sit at $1.225 million, and a whopping $2,537,126 in Newport Beach, to name a few.

Overall, the median home value in California is $463,600, an increase of 6.2% over the past year. That’s twice the national average of $232,500. While price hikes have slowed somewhat, they are still expected to continue to increase by another 2.1% within the next year.

To put affordability issues at bay and meet the high demand, more houses need to be built. In fact, in LA alone, a million more homes need to be built just to keep up with demand.

So why aren’t they? 

Builders are forced to contend with incredibly stringent regulations in the state, including building codes, land use regula­tions, environmental laws, impact fees, and administrative fees to enforce these reg­ulations.

This, in turn, generates exorbitant costs to build, which can significantly delay and even halt altogether any plans of future development that’s in dire need right now. And along with such regulations comes major expenses. It’s simply too costly for builders to have to go through all the red tape associated with getting the permission to build on land across the state.

Regulations come in many different forms, and can be enforced by various levels of government. County, state, and federal fees can add tens of thousands of dollars to a new home’s price tag. According to a report from the National Association of Home Builders, regulations imposed by the government add a sizeable $84,671 to the final price of a new single-family home.

Considering how expensive it is to contend with these regulations, developers just don’t have the motivation to build. If they did, they would inevitably have to price their homes higher in order to cover their costs and make a decent profit, which would severely limit the pool of buyers who can actually afford the homes.

So far, the powers-that-be in California have only come up with temporary fixes to deal with housing affordability issues, including subsidizing a handful of low-income housing programs. But these programs are marginally effective; they merely put a cap on housing choices at the expense of the hard-working taxpayer.

The obvious solution is to revisit restrictions and regulations, and identify areas that can be eased up on in terms of limitations and expenses. Building more homes can safely help to alleviate housing affordability and the squeeze on supply, but builders need a break on the cost associated to acquire land and build. 

The current presidential election is definitely an interesting one, capturing the attention of not just Americans, but people across the globe. We’re still quite a ways away from November when the 58th Presidential Election Day takes place on the 8th, which means things are only going to get even more heated.

But as fascinating as it is, what’s also intriguing is how such an election can affect other facets in the country, including the housing market.

So how and why would the election have such an impact?

Presidential Elections and the Economy

Presidential elections tend to reflect the underlying mood of the economy, and essentially consumer confidence. History has shown that voters tend to be much more confident and optimistic in a robust economy, which drives consumer spending along with restored enthusiasm for housing. Homeowners and homeowner-hopefuls zealously enter the market with the notion that the American Dream is alive and kicking, which helps spike property values as returning politicians head back to office.

The opposite is also true. When the economy is struggling, consumer confidence nosedives. This, in turn, puts pressure on consumer spending, sending housing prices right down with it.

It’s happened throughout history, and it’s well-documented. Studies have even been conducted on the effect that presidential elections have on the economy and the housing market. The British Journal of Political Science published a paper in 2014 which details the observation of home sale and price trends during elections. The study involved analysis of data from 1999 to 2006 during 73 of those elections. What they discovered was that the price of homes dropped two- to three-tenths of a percentage point.

Other studies discovered similar findings. In 2012, Movoto.com showed that the housing market was affected by presidential elections using data from the California Realtors Association (CAR). They found that housing prices increased 1.5% less than in the year right before the elections, and 0.8% less than in the year right after the election. This might not seem like a lot, but little differences like these can really add up with time. The year of a presidential election could realistically cause property values to decline.

Elections Effect Consumer Confidence

Two different studies, same conclusion. Consumers look as if their confidence lacks when they’re in the midst doubt during these elections. Basically, consumers aren’t comfortable enough with the economy’s strength to make such a huge purchase. It’s not hard to accept the fact that when the economy is somewhat weak, as it is now, it directly mirrors consumer confidence.

Elections place a lot of weight on the shoulders of consumers who may have been in the market to buy a home. Every president that steps into office might have very different policies on housing and mortgages that could potentially impact buyers. Consumers are concerned about such effects, and many would simply rather wait it out and buy only when they feel certain that politics have stabilized.

Until then, and until the economy shows major signs of strength and stability, consumers just aren’t as apt to making a massive financial decision such as a home purchase. They’d much rather wait until all the uncertainties blow over, including who is elected to head the country. And the fact that the race is such a tight one so far this year means the uncertainty is even more prominent.

How Does This Affect Buyers and Sellers?

Experts anticipate housing prices to increase by about 3% this year, which is lower compared to recent years past. It’s highly possible that such speculation is related to the fact that a presidential election is looming. Some say that anyone willing to accept added risk might be able to snag a good deal on a home purchase. Others say it could take longer for sellers to find the right buyer, and recommend that sellers either sell the year before or after the election to take advantage of slightly higher property values.

Either way, it’s important to pay close attention to the market, regardless of whether there’s an election or not, before buying or selling. Everyone’s specific financial situation is different, and by working with a real estate agent and mortgage broker, you’ll be in a much better position to make a sound buying or selling decision.