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How Do Jumbo Rates Compare To Conforming Rates
Before the financial crisis of 2008, jumbo loans typically had rates at least .25 percent higher than conforming loans because jumbo lenders were perceived as taking more risk making loans that couldnt be sold to government-backed Fannie Mae and Freddie Mac. This risk translated into higher consumer rates.
In the years following the financial crisis, federal regulations have impacted rate markets in such a way that has enabled banks to keep jumbo rates about the same as conforming rates.
This dynamic can change over time, so ask your lender to compare options for you.
What Are Mortgage Points
Also referred to as discount points, mortgage points are a fee borrowers pay lenders in order to receive a lower interest rate. In other words, you are prepaying interest for a period of time in order to pay less on the overall lifetime costs of your loan.
One mortgage point costs 1% of your loan amount. For instance, if you take out a loan for $600,000, youll pay $6,000 to reduce your rate by 0.25%. It may not seem like a huge amount, but it can add up to tens of thousands of dollars in interest over the life of the loan.
For example, you take out a $600,000 mortgage with 20% down and at an interest rate of 3.25%. With a 30-year jumbo loan, youll pay $272,036.52 in interest. In contrast, if you paid $6,000 to lower the rate to 3%, youll end up paying $248,531.77 in interest, a savings of $23,504.75.
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How Much Is The Down Payment On A Jumbo Loan
In the past, jumbo loans typically required 20 percent or even 30 percent down.
Imagine youre buying a home worth $750,000. A 20 percent down payment would put you at $150,000 out of pocket and thats before closing costs are added in.
Todays homeowners have more options, though.
Jumbo loans are now available from some mortgage lenders with as little as 5 or 10 percent down. Others may require 15 to 20 percent.
It all depends on the mortgage company you work with. As we said before lenders have free rein to set their own rules for this type of mortgage.
Low-down-payment jumbo loans can be especially helpful for first-time home buyers who live in high-priced markets but havent had a lot of time to build up their savings.
Jumbo Vs Conventional Mortgages: An Overview
Jumbo and conventional mortgages are two types of financing used by borrowers to purchase homes. Both require homeowners to meet certain eligibility requirements including minimum , income thresholds, repayment ability, as well as minimum down payment requirements. Government-sponsored enterprises , such as Fannie Mae and Freddie Mac, the Federal Housing Administration , the U.S. Department of Veterans Affairs , or the USDA Rural Housing Service do not back either mortgage product. While they may be used for the same purposeto secure a propertythey are inherently different.
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 more in line with the needs of the average homebuyer and can be conforming or nonconforming. Keep reading to find out more about these two kinds of mortgage products.
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Good Candidates For A Jumbo Loan
If your new homes purchase price exceeds conforming loan limit in your area, a jumbo loan may be your best option.
Just keep in mind that to qualify and afford the monthly payments on a jumbo loan, youll need a healthy income. Thats true even if youre not making a big down payment.
We only recommend people take out mortgages they are comfortable making the on, says Catlin.
We often see people put less money down initially and then pay the mortgage balance down in chunks later. That can be especially smart when they have a home to sell, expect stock to vest, or will be inheriting money.
Also, says Jeanette, say interest rates are low and you can invest the down payment money in something else that will earn a higher rate of return. In this case, pursuing a low down payment jumbo loan can make sense.
What Is A Fha Jumbo Loan
A Jumbo FHA loan is considered to be any FHA approved loan amount that is above the standard limit of $331,760. You may be able to purchase a higher priced home with an FHA insured loan and a down payment of just 3.5%. For both conforming and FHA loans, there are also high cost areas where the loan limits are higher.
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Qualifying For A Jumbo Mortgage
The qualification process for a jumbo loan is similar to the conforming loan process. The lender will review your assets, income and credit score, but there are some differences. Jumbo loans typically have higher qualification standards than conforming loans since lenders take on extra risk with jumbo loans. Because of this, lenders are looking at several key factors to determine your risk level. Generally, this means higher credit, income and cash reserve requirements.
Here are some of the main qualification differences between jumbo and regular mortgages.
Should I Get A Jumbo Mortgage
The decision to take out a jumbo mortgage is a decision not to be taken lightly. Thats why its important to understand what lenders are looking for when it comes to these types of mortgages as well as making sure that you can afford the monthly payments. With homes that have a higher value, home insurance and maintenance needs may also be more expensive, so dont forget to factor these costs into your budget.
If you do decide to move forward, youll probably face a more complicated and involved process in order for a lender to approve a loan. Thats why shopping around is crucialfinding the right lender offers you the best chance of purchasing your dream home.
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Why Get A Jumbo Loan With Midland States Bank
In today’s competitive real estate market, purchasing your ideal home can seem nearly impossible. Midland States Bank helps make your homebuying dreams a reality with a jumbo loan. Whether you want to purchase a luxury home, a large property or a house in a sought-after area, we’ll help you find a solution that works best for your needs. Partnering with us allows you to:
- Apply online: Our straightforward online application takes just minutes to complete.
- Get the best rates: We offer competitive rates on our jumbo loans.
- Receive expert assistance: Our experienced team is here to help you every step of the way.
- Enjoy world-class customer service: We put our hearts into helping you achieve your homebuying goals.
Cash Reserves: What Does That Savings Account Look Like
Each lenders requirements are different, but in most cases, cash reserves are among the many things they look at when issuing jumbo loans. Most prefer to see that borrowers have enough cash on hand to cover at least a year of mortgage payments.
If youre applying for a standard 30-year fixed-rate jumbo mortgage, your monthly payments are likely going to be pretty high. Showing your lender that youre capable of handling that, even when income isnt flowing in, is a great way to stand out during the application process.
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First Mortgage Direct Best No
First Mortgage Direct, the online division of First Mortgage Solutions, offers both purchase loans and refinancing.
Strengths: First Mortgage Direct has no hidden fees or limited-time offers, and you can receive a personalized rate within seconds through its website. Borrowers are also able to close in 30 days, which is in line with many other lenders timelines.
Weaknesses: First Mortgage Direct is available only in 19 states .
Are There Any Unique Requirements For A Jumbo Loan
Based on the price of the home and other underwriting considerations, some lenders may require you to have cash reserves on hand. It is not uncommon for lenders to require between three and 24 months of cash. There are several ways to satisfy this prerequisite for liquid assets, like retirement accounts. This condition can also be mitigated with a very low DTI or a sizeable down payment.
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When Refinancing Makes Sense
Refinancing your mortgage can make sense if you plan to remain in your home for a number of years. There is, after all, a cost to refinancing that will take some time to recoup. Youll need to know the loans closing costs to calculate the break-even point where your savings from a lower interest rate exceed your closing costs. You can calculate this by dividing your closing costs by the monthly savings from your new payment.
Our mortgage refinance calculator could help you determine if refinancing is right for you.
Is A Down Payment Needed On A Va Jumbo Loan
Maybe. This is entirely dependent on your loan amount. For a loan amounts up to $1.5 million no down payment is necessary with a median credit score of 640 or better. For loans between $1.5 million $2 million, you need to have a 10% down payment or 10% equity in a refinance. You’ll also need a 680 median FICO®Score.
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Is Qualifying For A Jumbo Mortgage Different
Jumbo mortgages have the same overall qualifying methodology as a conforming loan. Lenders will look at credit score, down payment size, total monthly debt obligations relative to income , and money left over after closing.
As for money left over after loan closing often called reserves or post-closing liquidity jumbo loans will be more stringent than conforming. Typically jumbo lenders want to see 12 months of reserves after the close, half liquid , and half calculated from retirement assets. Conforming loan reserve requirements range from 0 to 12 months, depending on factors such as credit score, down payment, and DTI . Jumbo exceptions are available if your debt-to-income ratio is low and your down payment is high.
However, jumbo loan approvals have some flexibility that conforming loans dont have:
Shop Around For A Jumbo Loan Lender
During the coronavirus pandemic, some lenders have placed stricter requirements on borrowers asking for a jumbo loan. It’s always important to do your research, but especially during the pandemic, make sure you know whether a lender’s current requirements match what is published on its website.
If necessary, take some time to boost your credit score or save more for a down payment. Taking necessary steps can increase your chances of being approved for a jumbo loan and scoring a lower rate.
Finally, shop around for a lender. Some lenders will require smaller down payments or higher debt-to-income ratios than others, and some will give you a better rate. Do your research, or go through a mortgage broker for a professional to do the research for you.
Laura Grace Tarpley is an editor at Personal Finance Insider, covering mortgages, refinancing, bank accounts, and bank reviews. She is also a Certified Educator in Personal Finance . Over her four years of covering personal finance, she has written extensively about ways to save, invest, and navigate loans.
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Amerisave Mortgage Corporation Best For Refinancing
AmeriSave Mortgage Corporation is an online mortgage lender operating in every state except New York. The lender offers a range of purchase and refinance options, and was named one of Bankrates best FHA lenders this year.
Strengths: If youre looking to take out a 30-year mortgage , AmeriSave Mortgage Corporation can offer competitive rates and fast closings. In fact, 50 percent of borrowers have closed in as little as 25 days, according to the lender.
Weaknesses: Theres a $500 non-refundable application fee.
Who Should Take Out A Jumbo Loan
How much you can ultimately borrow depends, of course, on your assets, your credit score, and the value of the property you’re interested in buying. These mortgages are considered most appropriate for a segment of high-income earners who make between $250,000 and $500,000 a year. This segment is known as HENRY, an acronym for high earners, not rich yet. Basically, these are people who generally make a lot of money but don’t have millions in extra cash or other assets accumulatedyet.
While an individual in the HENRY segment may not have amassed the wealth to purchase an expensive new home with cash, such high-income individuals do usually have better credit scores and more extensively established than the average homebuyer seeking a conventional mortgage loan for a lower amount. They also tend to have more solidly established retirement accounts. They often have been contributing for a longer period of time than lower-income earners.
Don’t expect a big tax break on a jumbo loan. The cap on the mortgage interest deduction is limited to $750,000 for new mortgage debt.
These are just the sorts of individuals that institutions love to sign up for long-term products, partly because they often need additional wealth management services. Plus, it’s more practical for a bank to administer a single $2 million mortgage than 10 loans valued at $200,000 apiece.
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A Jumbo Loan Definition For Beginners
A jumbo loan is a home financing option that has two defining characteristics. First, jumbo loan amounts exceed the limits set by the Federal Housing Finance Agency so the term jumbo actually refers to the size of the loan rather than the size of the property being financed. Second, if a borrower defaults on a jumbo loan, lenders arent protected through federally-backed home mortgage companies like the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation .
Because these loan amounts are larger than average and cant be guaranteed upon default, the risk for lenders is higher. Consequently, borrowers have to meet strict requirements to qualify for jumbo loans. For pricey properties, jumbo loans are often the only type of mortgage available to buyers. Some lenders may have a maximum jumbo loan cap on the amount theyre willing to finance. While typical jumbo loan sizes vary, they can be as high as several million dollars.
Shopping Around For The Best Jumbo Mortgage Rates
When getting a jumbo loan , its a good idea to shop around. Bankrate is a good starting point. Because a non-conforming loan is usually for such a large amount, getting the best rate can make a big difference in the amount of interest that you pay.
Be sure to check with local financial institutions as well, since sometimes community banks or credit unions can have good rates. Its also a good idea to work with a mortgage broker who specializes in jumbo loans.
As you solicit quotes from lenders and brokers, make sure you provide information thats as accurate as possible. Because your is going to be a big determinant of your rate, review your credit report before you start shopping around. If you see errors, have them fixed as soon as possible.
Be prepared to answer questions about your liquid and non-liquid assets, as well as how much you can afford for your down payment. You should also have an accurate idea of your income and your debt levels so you can let potential lenders know your debt-to-income ratio. The more accurate your information, the more accurate your preliminary mortgage rate quote will be.
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Who Needs A Jumbo Loan
Buyers who dont meet the Fannie and Freddie loan limit restrictions are either expected to increase the amount of their down payment or find a lender that will offer a second mortgage for the difference so that they can get conforming loans, says Andrina Valdes, COO of Cornerstone Home Lending in San Antonio, Texas. Otherwise, the borrower will need to seek a jumbo mortgage loan.
A jumbo mortgage is a loan designed for a borrower who needs to finance a loan balance greater than conforming loan lending limits. The operative word here is borrow or financeits not the purchase price. You might also hear a jumbo loan referred to as a non-conforming loan. That simply means the loan doesnt conform to Fannie Mae and Freddie Mac lending standards.
Jumbo mortgages can be used for primary homes, second or vacation homes or investment properties, and they are available as both adjustable- and fixed-rate loans.
