If you’re in the market for a new home and have been doing your research, you may have come across the term “jumbo loan.” What is a jumbo loan? Do you need one? Here are 5 things to know about jumbo loans:
Jumbo loans are for homebuyers looking to purchase a property that exceeds the conforming loan limit
Jumbo loans are for the big-time homebuyers: those who are seeking to purchase a property that won’t fit within a conforming loan limit (Loan Amounts above $726,200). Fittingly, these larger-than-normal mortgages come with a higher loan amount, usually requiring buyers to go through special steps and even speak directly to Loan Officers about their specific financial situations. Whether you’re looking for a place with more square footage, a roomier yard, or unique amenities, jumbo loans make it possible to turn dreams into reality.
Jumbo loans typically have higher interest rates than conforming loans
Loan officers typically advise against taking out jumbo loans as they tend to come with higher interest rates than conforming loans. This is because lenders consider them a riskier loan option due to the greater amount being borrowed. Loan officers may suggest other options such as refinancing, adjusting your budget, or consolidating debt into one lower-cost loan. It’s important to note that although these ways are more attractive options financially, jumbo loans still exist for those who make it through the lender’s thorough qualification process and have plenty of disposable income.
Jumbo loans require a higher credit score than conforming loans
If you’re in the market for a jumbo loan, it’s important to understand how your credit score can affect your ability to access this type of loan. Loan officers typically recommend that borrowers have a minimum credit score of 680 and sometimes as high as 720 to qualify for these higher loan amounts. By comparison, conforming loans are more accessible at lower credit scores, often as low as 620. If your credit score is below this threshold and you need a higher amount for a large purchase like a luxury home or an investment property, consider improving your credit score first before approaching a lender. With the right amount of time and effort, you may be able to increase your chances of being approved for the loan you need.
Jumbo loans often come with stricter underwriting guidelines
For those looking to get a jumbo loan, it pays to know that the process is usually stricter than with other-size loans. Loan officers zero in on borrowers’ financial profiles and go beyond simply looking at traditional credit scores or debt-to-income ratios. In addition to verifying income and employment, they may also assess assets, liabilities, and the buyer’s ability to repay the loan – all of which require more time, paperwork, and effort. It is worth noting that this extra scrutiny results in better-quality mortgages for everyone involved. As such, jumbo loans can provide a sound option for those who meet these stringent requirements.
Borrowers should compare multiple lenders when shopping for a jumbo loan
Shopping for a jumbo loan can seem intimidating in size, as they’re larger than most other loans out there. However, getting a variety of lenders to compare is the best way to make sure you’re getting the right type of loan. Loan Officers can be incredibly helpful in this process, helping to make sense of Loan estimates and APR differences. Comparing multiple lenders with a Loan Officer’s help can quickly narrow down the choices for jumbo loans and ensure you get the one that’s best for your circumstances.
Jumbo loans are a great option for those looking to purchase properties that exceed the conforming loan limit, but they come with higher interest rates and stricter underwriting guidelines than conforming loans. Be sure you check your credit score before applying and shop around to get the best rate from various lenders. Don’t forget that it is important to understand what a jumbo loan is as well as its advantages and disadvantages as it relates to your position within the real estate market. If you have any questions or need advice on how best to proceed with a jumbo loan, reach out to any Loan Officer at Your Next Lender, they will be able to help you with any of your questions and provide additional guidance in navigating jumbo loans. Good luck on this journey!
