If you are looking to buy a home, you need to consider which type of mortgage you’re going to use. You could go with a regular conforming mortgage, but if you want a more expensive home then you will probably need a jumbo mortgage.
A jumbo mortgage is a loan that exceeds the Federal Housing Finance Agency’s loan limits for mortgages that can be bought by Fannie Mae and Freddie Mac. These loans typically have stricter qualification requirements than conforming loans, but they can still offer competitive interest rates. They also offer a convenient way for borrowers to secure the money to purchase their expensive dream home.
When you get a jumbo mortgage, your lender can’t rely on the backing of Fannie Mae and Freddie Mac to reduce their risks. Whereas with conforming loans, lenders expect to get back some of their losses if a borrower defaults.
This explains why jumbo rates are usually higher than conventional loan rates. The lenders who make loans, and the investors who buy them, consider jumbo loans to be much riskier than conventional loans. As a result, jumbo loans can often be more expensive or have higher qualifying requirements.
The qualification process for a jumbo loan is similar to the process for a conforming loan. The lender will review your assets, income, and credit score. The key difference between the two types of loans is that jumbo loans tend to have a higher qualification standard, since it is a bigger risk for the lender. This means higher credit score, income, and cash reserve requirements.
Taking out a jumbo mortgage doesn’t automatically mean higher interest rates. In fact, jumbo mortgage rates tend to be very competitive and may be lower than conforming loans. It ultimately comes down to the lender and the market conditions.
Factors such as your credit score, down payment, cash assets, and income also affect the interest rate you are offered. All that to say, taking out a jumbo loan doesn’t necessarily mean jumbo interest rates.
Do you qualify for a jumbo loan? Contact us to learn more or apply for a jumbo loan today.