How To Get The Best Jumbo Mortgage Rates
Lenders typically hold jumbo mortgages in their loan portfolios, which means they can set interest rates based on their own standards. Shopping for jumbo loan rates may save you thousands, if not hundreds of thousands of dollars over the life of a large loan amount.
You may find big differences in 30-year jumbo rates offered by different mortgage companies, but in most cases youll get the best jumbo loan rates by following these five steps:
Should You Avoid Jumbo Financing
This page updated and accurate as of November 25, 2021 Jumbo Mortgage Source
Jumbo loans are loan amounts above local conforming loan limits, in most locations this conventional loan limit is currently $548,250. Things have changed somewhat over recent years with Jumbo loans and these changes have made them more attractive, primarily as it relates to jumbo interest rates and structuring loans.
For some lenders not very experienced in the jumbo market, consumers might get the impression the lender doesnt want to issue a jumbo loan. Why? Because one of the first things some loan officers do is to find ways around a jumbo mortgage and get a bit more creative with your purchase. Yet that might very well be a mistake, especially so for those with higher credit scores and greater down payment.
In the past, say pre-2007, fixed jumbo interest rates could be more than 1.0% higher than for a conforming loan under the same circumstances. If a conforming rate was at 3.50% on a $400,000 loan a jumbo rate might be somewhere around 4.50% on a $600,000 mortgage. Using a 30 year fixed rate of 4.50%, the 1.0% difference can mean a lot, especially over the long term. Thats why some loan officers will run different scenarios in order to avoid the perceived pain of a jumbo rate.
Now, instead of a single jumbo loan, keep the first mortgage at $548,250 and follow up with a second lien of $91,750. Using the lower 3.5% conforming rate on $548,250 the principal and interest payment would be $2,461
How A Jumbo Loan Works
If you have your sights set on a home that costs close to half a million dollars or moreand you don’t have that much sitting in a bank accountyou’re probably going to need a jumbo mortgage. And if youre trying to land one, youll face much more rigorous credit requirements than homeowners applying for a conventional loan. Thats because jumbo loans carry more credit risk for the lender since there is no guarantee by Fannie Mae or Freddie Mac. There’s also more risk because more money is involved.
Just like traditional mortgages, minimum requirements for a jumbo have become increasingly stringent since 2008. To get approved, youll need a stellar credit score700 or aboveand a very low debt-to-income ratio. The DTI should be under 43% and preferably closer to 36%. Although they are nonconforming mortgages, jumbos still must fall within the guidelines of what the Consumer Financial Protection Bureau considers a qualified mortgagea lending system with standardized terms and rules, such as the 43% DTI.
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What Is A Jumbo Fixed Rate Mortgage
Jumbo mortgages are home loans that exceed the limits for conforming mortgages set by the Federal Housing Finance Agency.
Across most of the country, this limit is $484,350, but in certain high-cost areas, such as Hawaii, the limit is $726,525 .
When you take out a jumbo loan, Fannie Mae or Freddie Mac will not buy the loan on the secondary mortgage marketas they would with most conforming loans.
The Interest Rate Will Likely Be Higher
Interest rates on jumbo loans are at historic lows because of the rate cuts from the Federal Reserve in 2020. But theres one thing to keep in mind: they still tend to be higher between 0.25% and 0.50% higher than those from conventional mortgages, according to the Wall Street Journal. The interest rate you receive will depend on a number of factors, including credit, DTI, and down payment, but you can probably expect to pay a premium for taking out a jumbo loan.
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San Francisco Bay Area: $765600
As you might have guessed, the San Francisco Bay Area is another one of those higher-priced real estate markets that gets the highest conforming / jumbo loan limit in 2020. In this region of California, the jumbo loan threshold starts at $765,600. Within the Bay Area, that limit applies to Alameda, Contra Costa, Santa Clara, San Francisco and San Mateo counties.
Jumbo Vs Conventional Mortgages: An Overview
Jumbo mortgages and conventional mortgages are two types of financing borrowers use to purchase homes. Both loans require homeowners to meet certain eligibility requirements including minimum , income thresholds, repayment ability, and down payments. Both are also mortgages issued and underwritten by lenders in the private sector, as opposed to government agencies like the Federal Housing Administration , the U.S. Department of Veterans Affairs , or the USDA Rural Housing Service .
Though they may serve the same purposeto secure a propertythese two mortgage products have several key differences. Jumbo mortgages are used to purchase properties with steep price tagsoften those that run into the millions of dollars. Conventional mortgages, on the other hand, are smaller and more in line with the needs of the average homebuyer. They also may be purchased by a government-sponsored enterprise such as Fannie Mae or Freddie Mac.
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Jumbo Loan Limits Vary By Property Type And Region
- It certain high-cost regions of the country there are expanded jumbo loan amount limits
- These loan limits are also higher for multi-unit properties like duplexes and triplexes
It should be noted that there are different jumbo loan limits depending on both the number of units on the property, along with where the property is located.
There are also high-cost conforming limits that arent jumbo or conforming, but somewhere in between, which Ill discuss below.
For properties located in the contiguous United States, including D.C and Puerto Rico, jumbo loan limits are as follows:
1-unit property: Greater than $548,250 2-unit property: Greater than $702,000 3-unit property: Greater than $848,500 4-unit property: Greater than $1,054,500
*In Alaska, Guam, Hawaii, and the U.S. Virgin Islands, jumbo loan limits are even higher.
For example, you can get a home mortgage as large as $1,581,750 for a four-unit property in Honolulu before it is considered jumbo.
As you can see, in some parts of the country, you can get a very large loan without entering into jumbo loan territory. The same goes for multi-unit properties in all 50 states.
Rather importantly, jumbo mortgages cannot be sold to Fannie Mae or Freddie Mac.
As a result, outside investors typically buy these nonconforming mortgages in securitized bundles on the secondary market, or lenders simply keep them on their own books .
Conversely, real estate priced closer to the national median is never short of buyers and sellers.
Effects Of Recent Events
Recent events constraining liquidity, securitization, and demand in the capital markets for structured debt securities have severely impacted the ability of conventional lenders to make loans larger than the Fannie Mae conforming loan limit . This is due primarily to the inability of most mortgage originators to sell or otherwise deliver large loans to investors. Unable to sell, the originating lender must then retain and service the loan utilizing their existing capital. The net effect has been an overall reduction in the Loan To Value permissible in a traditional super jumbo mortgage and an increase in the level of income documentation required for such large mortgages by comparison to the period from 2003 to June 2007, during which time the capital markets were willing and able to purchase these securities. The current constraints are leading mortgagors to make larger cash down payments to make up for the reduction in leverage currently being afforded, and a resurgence in the utilization of mortgages from private banks and other non-traditional and non-MBS lenders.
In response to the tightened lender guidelines for loans over $1,000,000, many borrowers are using specialty mortgage brokers to assist with these unique loans.
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Whats The Difference Between A Jumbo Loan And A Conforming Loan
The primary difference between a jumbo loan and a conforming loan is that a jumbo mortgage exceeds the maximum limits on home loans accepted by Fannie Mae and Freddie Mac.
Because jumbo loans arent backed by Freddie Mac and Fannie Mae, they carry more risk for mortgage lenders. As a result, jumbo loans may come with higher interest rates, require a larger down payment, and face a more stringent underwriting process.
Though specific requirements will vary by lender and borrower, check out the table below for a breakdown of where jumbo loans can differ from conforming loans:
The Piggyback Jumbo Mortgage
Need a jumbo mortgage but you donât want to pay a jumbo mortgage rate? You might consider a piggyback loan.
A piggyback loan is an arrangement where you use two mortgages, instead of just one, to finance the purchase of a home. The second, smaller mortgage is said to âpiggybackâ on top of the primary loan.
With a jumbo piggyback loan, you can take out a low-interest conforming mortgage for part of the loan, then a second piggyback loan for the remainder. In some cases, it may also enable you to avoid paying for private mortgage insurance as well.
Piggyback mortgages, sometimes called blended mortgages, are much less common than they were a few years ago, when they were a popular type of home financing during the boom years of the last decade. But they still can be a very practical way to save money when buying a home.
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Which Mortgage Type Is Right For You
Mortgages are not one-size-fits-all. Lenders look at the individual and their unique circumstances to determine whether they qualify for a loan.
Remember, lenders want to give you a loan. But they have to make sure you have the ability to make your full payment every month. To find out what your monthly payment might be, try adjusting some of your numbers in an online mortgage calculator
Ready to take the next step towards buying the home of your dreams? Contact a Home Lending Advisor. If you already know that a jumbo loan is the right solution for you, apply for a jumbo loan today.
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How To Use Our Jumbo Loan Calculator
To see the estimate of monthly house payments:
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Fill in the home’s price .
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Enter the size of the down payment.
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Input the interest rate. If you need help coming up with a number, follow the link under that field to see the rates that lenders are currently offering.
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Select a 15- or 30-year loan term. A 15-year loan has higher monthly payments, but you pay it off quicker a 30-year loan has more affordable payments, but you pay more interest over the life of the loan.
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Pick the range of your credit score.
Under “Results,” you’ll see the estimated monthly payments, including property taxes and homeowners insurance, as well as your total estimated payout over the life of the loan, including the down payment.
Select the “Monthly” box and you’ll see the payment broken down by principal and interest, estimated property tax and, finally, estimated homeowners insurance.
Select “Total” and you’ll see the down payment, the principal , all of the interest paid and the total estimated homeowners insurance and property tax paid over the life of the loan.
How Do Jumbo Mortgage Rates Compare To Conforming Loan Rates
It makes sense that lenders might charge higher interest rates on jumbo loans because, as mentioned before, theres so much risk involved. However, market data suggests that interest rates on jumbo loans are very competitive with market rates.
At todays rates, the difference between conforming and nonconforming loans ranges from just 0.25% to 1%. In fact, some jumbo loans have rates that are lower than other mortgage loans.
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Jumbo Loan Limits For 2021
A jumbo loan is a mortgage that exceeds the conforming loan limit set by the FHFA for a given area. The most common conforming loan limit for 2021 is $548,250, which means any mortgage thats larger than that is a jumbo loan. Loans above these limits are not under the coverage of government entities Fannie Mae and Freddie Mac. That makes them inherently riskier than a conforming loan.
While the aforementioned $548,250 limit is generally seen as the standard for 2021, actual county-level limits can vary. These variations occur because of differing average home values, state lending limits and real estate market activity.
For instance, every county in Alaska and Hawaii has a $822,375 limit, which is the highest it can be. American territories like Guam and the U.S. Virgin Islands have the same limit.
Below is an overview of every U.S. state, county or territory that has a conforming loan limit above the $548,250 standard. If the place youre looking to buy a home in isnt below, its loan limit is $548,250.
How Can I Get Around Jumbo Loan Requirements
Jumbo loans are home mortgage for more than the size limit set by the government-sponsored entities Fannie Mae and Freddie Mac. The GSEs are limited by law to the maximum mortgage loans they can make. Homeowners or buyers who need a jumbo loan will pay a higher rate of interest than with a âconformingâ loanâthat is, one that conforms to the Fannie and Freddie limits. For example, in August 2010, Wells Fargo bank was quoting a rate of 4.375 percent for conforming mortgages and 5.125 percent on jumbo loans
1
Look up the conforming loan limit for the area where you home is located. In 2010, the national limit is $417,000, but some areas of the country have limits as high as $729,750. A link to the Federal Housing Finance Authority where the loan limits can be downloaded is provided in the Resources section.
2
Calculate the difference between your projected jumbo loan amount and the local conforming limit. For example, if you are planning to finance $750,000 in Paso Robles, Calif. where the limit is $687,500, your projected loan is $62,500 into jumbo loan territory.
3
Consider a second mortgage loan for the amount over the conforming limit. In the example above, you could get a second mortgage for the $62,500 and get a conforming loan for $687,500. Obtaining a second mortgage loan or paying the difference in cash are your two options to avoid using a jumbo loan.
References
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Faq: What Is High Balance Conforming Loan Limits
The baseline conforming loan limit for 2021 is $548,250 up from $510,400 in 2020. The limit is higher in areas where the median house cost exceeds this number, so borrowers in high-cost areas can get conforming loans of up to $822,375, depending on the limit in their individual county.7
Do You Qualify For A Jumbo Loan
Like any type of mortgage, jumbo mortgage approvals happen on a case-by-case basis. While it’s safe to say that it’s more difficult to qualify for a jumbo mortgage than a traditional mortgage, having a few missed payments on your credit history or a lower savings account balance may not automatically prevent you from getting a jumbo mortgage.
Everyones financial situation is unique. Talk with a Home Lending Advisor to learn about what options you have. You can also check out our free mortgage calculator to get a better picture of jumbo mortgage payments. Or, if you’re ready to buy that dream house, you can apply for a jumbo loan today.
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