What is a jumbo loan?
As the very name suggests a Jumbo Loan is one that exceeds the conforming loan limit. The amount of money that you can borrow is above the average: hence the name “jumbo”. For all States, the current conforming loan limit for a single-family home is $417,000, with Alaska and Hawaii being the exceptions: $625,500.
Certain loan programs have conforming high balance limits: a reality that defines federally designated high-priced markets. In comparison with standard conforming loans, packages with high balance limits are more expensive in terms of interest rate and much stricter in the underwriting requirements. Limits could also differ for multi-unit homes.
The specifics of jumbo loans
The requirements for qualifying on a jumbo loan make the difference. In order to get such a loan, the borrower should:
– have low debt-to-income ratio;
– make a higher down payment;
– have more emergency funds (money reserves).
In comparison with a conforming loan, a jumbo loan could have a higher interest rate. Other distinct features could differentiate between such mortgages and conforming loans, however, these differences vary from lender to lender. Do your homework well when you apply for a loan: find out the costs and requirements for jumbo loans from several investors.
Maybe the jumbo loan seems like the easiest way to buy a high-priced home, but you should not rule out other options before checking them closely. Here are some possible alternatives!
A higher down payment. The more you pay upfront, the less you need to borrow. Such a solution could prove of real help particularly if the mortgage is just a little over the conforming loan limit.
A combination loan is a double mortgage. Instead of one mortgage, you get two. This option could give you some headaches given the complexity and amplitude of the borrowing endeavor. In order to avoid the special requirements and higher rates of the jumbo loan, you may take a large mortgage that conforms with the loan limit, and another smaller one, in parallel. The interest rate on the second mortgage is usually higher, therefore, you should calculate the expenses against the possible savings. After all, you take two mortgages and you end up with two monthly payments that could put strain on your budget. Can you afford the combined payment?
Talk to a financial adviser who knows the ups and downs of the loans market. You can thus have someone with the expertise needed to determine the optimal scenario for your case: jumbo loan with big down payment or two loans in parallel? Understanding the full costs and terms involved is a must in order to make an informed decision.