Jumbo loans, also known as jumbo mortgages, are one of the lesser-known types of home loans for one big reason: most people will never need them. While anyone can qualify for a USDA loan if they want to move to the country or small town, only those who are seeking a larger-than-average loan will ever even need to consider a jumbo loan.
Today we’re going to break down the jumbo loan and who is most interested in them. Because they’re for such a large amount of money, there are certainly more restrictions than with a conventional mortgage loan. However, if a jumbo loan is right for you, the Frederick Branch of Goldwater bank will make getting you one as easy as possible.
What Is a Jumbo Mortgage?
A jumbo mortgage loan is one in which the borrower borrows more than $417,000. (For Alaska and Hawaii, the limit constituting a Jumbo loan is $625,000.) Jumbo loans are available in both fixed and adjustable options, as well as interest-only mortgages.
Who Needs Them?
There are two types of people who most often need jumbo loans. The first is someone who wants to live in a luxury home that is considerably more expensive than the average home in the area.
The second type of person who comes to us seeking a jumbo loan is one who lives in a high-cost area of the country. $416,999 isn’t going to buy much of a house in San Francisco, so certain parts of the country have a higher amount for what constitutes a luxury home. In some high-cost areas of the country a loan doesn’t become a jumbo loan until it reaches $938,250.
You may be wondering why the amount of jumbo loans change depending on the value of surrounding property. Imagine that a borrower defaults on a luxury home they built in the middle of Kansas. There will be very few buyers in the area who are looking for such a home, and it will take the bank much longer to sell the house and recoup the $417,000. But in some areas of the country, there’s much less risk to the bank because the housing market is good. Even if someone defaults on a $800,000 loan in San Francisco, the recouping of the loan will be much faster.
Higher Interest Rates Are The Norm
Once a loan reaches jumbo status, it becomes more of a risk for the lender. These costs are offset by raising the interest rates on all jumbo loans across the board.
Higher Credit Scores Are Necessary
If you’re applying for a jumbo loan, it’s a good idea to keep an eye on your credit. While the allowed minimum credit scores are always changing, you’ll want to make sure it’s as healthy as possible before you apply. This will not only increase your chances of being approved but could also reduce your interest rate as your credit score climbs.
Higher Down Payments May Be Required
Jumbo mortgage loans often require a higher down payment. Again, that’s because of the risk associated with someone taking out a loan of that size.
Lower Debt Ratios Are A Plus
Just because you have a lot of money doesn’t necessarily mean that you’re a shoe-in for a jumbo loan. If you make $200,000 a year but have just purchased a $200,000 Ferrari, it’s likely that your debt ratio is much too high. Talk with a loan officer at Goldwater Bank to see what your options for you are regarding reducing your debt-income ratio.
If you need a jumbo loan, we’re here to help find you the best one that fits your wants and your budget. Read more about them here!