As the housing market continues to improve, house prices continue to climb. This leaves many borrowers with the need to take out a jumbo loan. Before this sends you shuddering in fear, you should know that jumbo mortgage rates are not nearly as high as they used to be. In fact, in many cases you’ll find little to no difference between the rates of a jumbo loan and a conforming loan.
What is a Jumbo Mortgage?
First, let’s look at what defines a jumbo mortgage.
Any loan that is more than the conforming amount is a jumbo. In 2018, this means any loan that is higher than $453,100 as that is the national conforming limit this year. This goes for both Fannie Mae and Freddie Mac loans.
However, if you live in a high-cost area, your maximum conforming limit may be somewhat higher. In general, Fannie Mae and Freddie Mac set a ‘ceiling’ that is 150% higher than the national conforming limit for these areas. This means in high-cost areas, you can secure a conforming, non-jumbo loan for up to $679,650. If you must borrow more than that in high cost areas, you will need a jumbo loan.
The Worry About Jumbo Mortgage Rates
Before the housing crisis, it was true that jumbo mortgage rates were higher than conforming rates. In fact, it was not abnormal to pay more than twice the rate of a conforming loan. This was due to riskiness these loans caused. Once the housing crisis happened, jumbo loans became almost obsolete. If you were lucky enough to find a willing lender, you would pay much higher interest rates as a result.
Today, there is a much larger market for jumbo loans. In fact, there’s even a demand in the investor’s market. This means there’s a greater supply of jumbo loans and less stringent guidelines for them. Borrowers don’t have to jump through hoop after hoop just to get a slightly higher mortgage than the conforming limits allow.
How to Qualify for a Jumbo Loan
So now that you know you can secure a jumbo loan without paying inflated interest rates, it’s time to learn how to qualify for one.
You still might run into stricter underwriting guidelines only because the lender takes a greater risk providing you with this type of loan. Basically, you need good credit, a low debt ratio, and stable income. It’s not anything unusual or nothing that lenders would require should you get a standard conforming loan.
In general, you’ll need:
- A higher down payment, usually 10% – 20%
- Credit score of 700 or higher, although some lenders will allow scores as low as 660
- Debt ratios that do not exceed 43% on the back-end, but some lenders require lower ratios
- Assets on hand to be counted as reserves (separate from your down payment funds)
Finding a Jumbo Loan
The good news is that it’s much easier to find a jumbo loan today. Right after the housing crisis, it might have been a bit more difficult. Lenders were very leery about giving out any risky loans. Today, many lenders offer them which means you can compare your options and choose the most affordable one.
Don’t focus only on the interest rate and/or costs. Look at the big picture. What will the loan cost you when it’s all said and done? Look at the APR; this will give you a good indication of which loan is more affordable. Sometimes, you might find that it’s the loan with the higher interest rate, yet lower closing costs.
Finding a jumbo loan isn’t going to be hard today. In fact, it’s not even hard to find low jumbo mortgage rates. You just have to do your homework and weigh the pros and cons of each loan. When it’s all said and done, you should walk away with an affordable jumbo loan that helps you buy the home of your dreams.