It is Getting Simpler to Take Out a Jumbo Mortgage — however Ought to You?
If you need to take out a larger mortgage, a loan to match may not be enough. Instead, you may have to resort to a jumbo loan.
In most of the United States, a mortgage falls into the jumbo range once the loan amount exceeds $ 548,250. However, in some high-cost areas of the country, that threshold rises to $ 822,375.
At the beginning of the pandemic, it was more difficult to qualify for a jumbo loan. Since then, however, lenders have eased their lending standards a bit, and qualifying for a jumbo mortgage became easier in the second quarter of 2021, according to the Federal Reserve Board.
When you are considering taking out a jumbo loan, there are a few drawbacks that you should be aware of. Here are some specifics to consider before submitting your application.
You could get stuck with a higher interest rate
You will typically be charged higher interest rates on a jumbo loan than on a compliant mortgage. The reason? Your lender is taking more risk.
At the moment, the average mortgage rate over 30 years is 3.024%. For a 30 year jumbo loan, it’s 3.066%. With mortgage rates consistently low right now, 3.066% is actually a good rate for a jumbo loan. But as you can see, it is higher than the average conforming loans for the same term.
You will likely need a larger deposit
When you take out a conventional mortgage, you are usually asked to deposit at least 10% of the purchase price of your home. Some lenders can let you get away with just a 5% discount. However, it is advisable to save 20% to avoid private mortgage insurance.
Often times, when it comes to jumbo loans, you need to pay back at least 20% of the purchase price of your home upon completion to get a jumbo loan. Some lenders may require you to file even more. And since you are going to be borrowing a large amount, it can be difficult to make that down payment.
If you want to apply for a jumbo mortgage, there are a few things you need to do first:
- Shop with different lenders to make sure you get a good rate
- Make sure your credit score is good (the higher it is, the more likely you are to qualify for a jumbo loan and get a more competitive interest rate).
- Do the numbers on a mortgage calculator to make sure you can really swing your monthly payments under this new loan
In some parts of the country, even the cheapest homes are expensive and you may need to take out a jumbo mortgage to finance one. Just make sure you know what you’re getting yourself into before you take that plunge. Mortgage lenders may relax jumbo loan lending standards, but just because you qualify for a jumbo loan doesn’t mean it is the right choice for you.
The chances are good that interest rates will not remain at a low of several decades for much longer. This is why it is important to act today, whether you are looking to refinance and cut your mortgage payment or are ready to pull the trigger when buying a new home.