Jumbo

Benefits

A jumbo loan can provide the opportunity to purchase a property that might otherwise be out of reach. Some of the key benefits of a jumbo loan include:

• Higher Loan Amount: A jumbo loan enables you to finance a property at a higher price point. Whether you are looking for a luxury property, vacation home, or your dream residence, a jumbo loan may provide the necessary financing. The conforming loan limits typically range from $726,200 to $1,089,300, depending on the location of the property.
• Competitive Interest Rates: You may be surprised to learn that interest rates on jumbo loans can be comparable to those of conventional loans, and in some cases, they may even be lower.
• Avoid Private Mortgage Insurance (PMI): Certain lenders may allow you to forgo private mortgage insurance (PMI) on a jumbo loan, particularly if you make a down payment of at least 10%. This can result in significant monthly savings.

While jumbo loans can provide the necessary financing for higher-priced properties, there are several factors to consider before proceeding:

• Stricter Qualification Requirements: Jumbo loans typically have more stringent qualifications. Applicants must demonstrate a higher income, a strong credit score, and a significant down payment. Lenders generally require a debt-to-income (DTI) ratio of less than 43%, and the loan-to-value (LTV) ratio may be capped at 80% of the property’s value.
• Potentially Higher Interest Rates: Since jumbo loans are not backed by Fannie Mae or Freddie Mac, they carry more risk for lenders, which can lead to higher interest rates. Although jumbo loans have historically had higher rates, many lenders now offer them at rates comparable to or even lower than those of conventional loans.
• Cash Reserves Requirement: To secure the best terms for a jumbo loan, you may be required to show cash reserves, typically ranging from three to 24 months’ worth of expenses. Lenders may have varying standards for what qualifies as cash reserves, with some accepting 401(k) balances, while others may require funds to be held in more liquid accounts.
• Limited Availability: While jumbo loans are not rare, they are not offered by all lenders. It may take some effort to find a lender in your area that offers jumbo loan products.
• Higher Costs: Jumbo loans, due to their larger size, come with higher costs. Closing costs, which are based on a percentage of the transaction, will be higher. Additionally, fixed-cost services, such as appraisals and home inspections, may cost more, especially for larger homes that require more extensive evaluations.