For many, buying a home is the largest purchase they will make in their lifetime. To cover such a large expense, some may turn to jumbo loans—what is a jumbo loan exactly? Jumbo loans are mortgages that exceed conforming loan limits set by the Federal Housing Finance Agency (FHFA). These loans offer borrowers more flexibility and purchasing power than traditional mortgages, but come with higher interest rates and stricter underwriting requirements. In this blog post, we will explore the new world of jumbo loans and why you should consider one for your next home purchase.
What is a jumbo loan?
A jumbo loan is a type of mortgage that exceeds the conforming loan limit set by the Federal Housing Finance Agency (FHFA). Jumbo loans are used to finance luxury properties and homes in high-cost areas.
The FHFA sets the maximum loan limit for conventional mortgages at $484,350. Loans above this amount are considered jumbo loans. The average interest rate for a 30-year fixed-rate jumbo loan was 4.72% as of April 2019, according to Bankrate.com.
Jumbo loans typically require a higher credit score and down payment than conventional loans. Lenders may also require a higher debt-to-income ratio for borrowers seeking a jumbo loan.
With the recent rise in home prices, more borrowers are taking out jumbo loans to finance their dream homes. According to Mortgage Bankers Association, the number of applications for jumbo mortgages increased by 21% in 2018 from the previous year.
The different types of jumbo loans
A jumbo loan is a mortgage that exceeds the conforming loan limit set by the Federal Housing Finance Agency (FHFA). Jumbo loans are available in both fixed-rate and adjustable-rate mortgage (ARM) products.
The different types of jumbo loans include:
1. Standard Fixed-Rate Jumbo Loan: With this type of loan, the interest rate and monthly payment are fixed for the life of the loan.
2. Adjustable-Rate Jumbo Loan: With this type of loan, the interest rate can change over time, which means your monthly payment could go up or down.
3. Interest-Only Jumbo Loan: With this type of loan, you’ll only make payments on the interest for a set period of time, usually 5 to 10 years. After that, you’ll start making full principal and interest payments.
4. Balloon Payment Jumbo Loan: This type of loan typically has a shorter term (5 to 7 years) and lower interest rate than a standard 30-year fixed-rate mortgage. However, at the end of the term, you’ll need to make a lump sum payment (the “balloon payment”) to pay off the remaining balance of the loan.
Pros and cons of a jumbo loan
A jumbo loan is a mortgage that has a higher loan amount than the conforming limit set by the Federal Housing Finance Agency (FHFA). In most areas of the country, the conforming loan limit is $484,350. However, in high-cost areas, the limit is $726,525. That means if you’re buying a home in a high-cost area, you’ll need to take out a jumbo loan to finance your purchase.
There are some advantages to taking out a jumbo loan. First, you’ll likely get a lower interest rate than you would with a conventional loan. Jumbo loans also come with no private mortgage insurance (PMI) requirements, which can save you hundreds of dollars each month.
However, there are also some drawbacks to taking out a jumbo loan. First and foremost, they’re more difficult to qualify for than conventional loans. You’ll need to have strong credit and income to qualify. Additionally, because they’re not backed by the government like conventional loans, they typically come with higher interest rates and stricter underwriting standards.
How to get a jumbo loan
If you’re in the market for a new home and need to borrow a large sum of money, you may be wondering if a jumbo loan is right for you. A jumbo loan is a mortgage that exceeds the conforming loan limits set by the Federal Housing Finance Agency (FHFA). In most parts of the country, the conforming loan limit is $484,350, but it can be higher in certain high-cost areas.
If you’re considering theseloan, there are a few things you should know. First, because they’re larger than conventional loans, jumbo loans typically have higher interest rates. You’ll also need to make a larger down payment – often 20% or more – and have strong credit to qualify.
If you think this loan might be right for your situation, talk to a lender about your options. They can help you understand the terms and conditions of these loans and determine if you qualify.
Alternatives to a jumbo loan
If you’re considering a jumbo loan, you may be wondering if there are any alternatives. Here are a few options to consider:
1. A conventional loan: Conventional loans are not backed by the government and typically have lower interest rates than these loans. However, they may require a higher down payment and stricter credit requirements.
2. An FHA loan: FHA loans are backed by the government and typically have lower interest rates than these loans. However, they may require a higher down payment and stricter credit requirements.
3. A VA loan: VA loans are available to veterans and active military members and offer competitive interest rates and relaxed credit requirements. However, they typically require a funding fee which can add to the overall cost of the loan.
4. A portfolio loan: Portfolio loans are private loans that are typically available through banks or other financial institutions. They often have competitive interest rates and relaxed credit requirements, but they can be difficult to qualify for.
5. A home equity loan: Home equity loans allow you to borrow against the equity in your home and can be a good option if you have good credit and equity in your home. However, they typically have higher interest rates than jumbo loans.
Jumbo loans are an increasingly popular option for those looking to purchase a home and require more funds than traditional mortgages can provide. Although they typically come with higher interest rates, they can be a great way to finance larger purchases as well as keep monthly payments manageable. If you’re in the market for a jumbo loan, make sure to research your options carefully and understand all of the associated risks before signing on the dotted line. With careful consideration, a jumbo loan could be just what you need to get into that dream house!