Jumbo Loan Options
A jumbo loan is a large-sized mortgage loan designed for buying higher-cost homes and luxury properties. Generally, it is any loan above the $424,100 mark, though in more expensive markets, the minimum threshold can be as high as $636,150 due to greater median home values. Jumbo loans are often called “non-conforming” loans.
How do Jumbo Loans Work?
In general, jumbo loans are harder to come by than smaller-sized mortgages. Because their balances are higher (and are therefore a higher risk to the lender), most mortgage companies require better credit, more income and lower debt-to-income ratios in order to secure a jumbo loan.
Jumbo loans can come with fixed or adjustable rates, depending on the product you choose. Fixed rate mortgages offer a consistent, reliable payment over the life of your loan, though those interest rates may be slightly higher than those of an ARM product. Adjustable rate mortgages, on the other hand, are only consistent for a short term (5 to 7 years, typically), at which point they can increase. Each type of loan has its own unique pros and cons.
Jumbo loans are not available on secondary or investment homes and typically require a full 20 percent down payment. That means 20 percent of the total sales price of the home will be due on closing day.
Pros and Cons of Jumbo Loans
Jumbo loans are designed with higher-priced homebuyers in mind, so if you’re looking for a luxury property or in a more expensive area, they could be the most beneficial product for your needs.
Is a Jumbo Loan Right for You?
The downside of a jumbo loan is the more stringent qualifications it will come with. Your credit score, debt-to-income ratio and down payment will all play a major role in your eligibility, and your lender will likely be more rigorous in requesting documentation to support these items throughout the loan process.
Jumbo loans are best for homebuyers who:
- Plan to buy a higher-priced property
- Have excellent credit and reliable income
- Have a low debt-to-income ratio
Want to choose between fixed and adjustable rate options
They might not be ideal for buyers who:
- Have poor to average credit
- Are buying a vacation or investment home
- Don’t have a 20-percent down payment