How a Jumbo Home Loan Can Help You Supersize Your Home to Fit Your Growing Family
Maybe you have a new baby on the way. Perhaps you adopted a child. It could be that you have an aging parent who will be moving in with you. There are plenty of reasons why your family may be growing. Whatever the impetus, when your family does grow, it’s nice if you can increase the size of your home too.
As you’d expect, larger homes often come with a larger price tag. Of course, the old adage of “location, location, location” impacts a home’s price too. So even a moderately sized home can cost quite a bit more if it’s in a highly desirable area.
What does all of this mean to you? When it comes to moving up to a larger home or moving into a more desirable neighborhood, instead of applying for a conventional loan, you may need to apply for a jumbo loan mortgage.
What qualifies as a jumbo mortgage loan? Read on and we will explain.
What Is the Difference Between a Conventional Loan and a Jumbo Loan?
The primary difference between a conventional loan and a jumbo loan is the amount of money you will be borrowing. This is not to be confused with the cost of the house you will be buying.
For example, you could be purchasing a $1 million home, but if you’re putting $800,000 toward the down payment, then you’re only financing $200,000. That’s not a jumbo loan amount.
What is the loan amount for jumbo mortgages? The actual amount is determined by Freddie Mac and Fannie Mae. More accurately, Freddie and Fannie set a cap on how large of a loan they will insure. The loans they insure are referred to as conforming loans because they conform with Freddie and Fannie standards. Anything beyond their insurable amount becomes a jumbo loan.
The amount that defines a jumbo loan amount changes from year to year. It depends on whether home values are trending up or down. Also, because property values vary dramatically from city to city, the amount that qualifies as a jumbo loan also depends on where the home is located.
So, let’s establish some jumbo loan basics for 2020.
In most areas of the country, jumbo loans begin at $510,401. For areas of the country with higher property costs, jumbo loans begin at $765,601.
Say you’re living in Averagetown, USA, and put $300,000 down on a $1 million home, you’ll need a jumbo loan. That’s because the $700,000 difference exceeds the national average cost.
Now take the same scenario in a high-value market, such as Washington D.C. There, you would use a conventional loan since the $700,000 is less than than the high-end jumbo loan amount of $765,601.
Why Is a Jumbo Loan a Non-Conforming Loan?
You may have heard of a jumbo loan also being called a non-conforming loan. How come? The Housing and Economic Recovery Act of 2008 set guidelines for “conforming” loans. This was to protect lenders from risk. As we mentioned earlier, Freddie Mac and Fannie Mae only back conforming loans. This means lenders are on the hook for a jumbo loan if the borrower defaults on payments. Because the lender is accepting all risk on jumbo or non-conforming loans, the maximum amount they will give you is up to them.
What Are Jumbo Loan Requirements?
Because there is greater risk involved for the lender, a jumbo loan is harder to get approved for than a conforming loan. When applying for a jumbo loan, each lender will have its own set of guidelines and checklists for approval. However, you can anticipate that most lenders will require you to have:
- A strong FICO credit score of 680 or above.
- Cash reserves on hand deposited into bank accounts.
- A large down payment to create immediate equity.
- Multiple appraisals to confirm the home’s value and support your requested amount.
- Additional fees could also be assessed to your loan program
You might also be asking, do jumbo loans require PMI (primary mortgage insurance)? The answer is it could. Just like a conventional loan, PMI is a factor depending on the manhunt of down payment you make in regards to the home’s total sale price. The best way to understand the ramifications and possibility of PMI is to work with a personal loan officer. You can also see the impact of PMI on your monthly payment by using this handy mortgage payment calculator.
Find the Best Jumbo Loan Rates and Advice
A growing family is a great time to increase the size of your home. However, the road to a larger home can be paved with unexpected challenges. Navigating your jumbo loan options and decisions is easier when you have a guide. By working with a personal loan officer, you’ll have help avoiding the most common mistakes, misunderstandings, and setbacks. Your personal loan officer will help you qualify for a jumbo loan, shop for the lowest interest rate, and even discuss if alternative loan structures are a better option than a jumbo loan. Ultimately, your personal loan officer will help you get the house your growing family wants at the best price and with the fewest challenges possible.