02-21-Jumbo-Mortgages-ArticleWhen I hear the word “jumbo,” I usually think of ginormous snack portions. At the movies, for example, you’re given the option of getting a jumbo-sized soda or bucket of popcorn. Around Valentine’s Day, you can find jumbo-sized greeting cards, boxes of chocolates and other goodies at convenience and grocery stores.

But the term “jumbo” is applicable when it comes to home loans, too. A jumbo loan is just what it sounds like – it’s a really big loan, compared to a traditional conforming loan. People usually seek jumbo mortgages when they’re buying a bigger home, since bigger homes generally come with bigger price tags.

However, jumbo mortgages aren’t just for those who are trying to buy a castle – in some areas of the U.S. with unusually high home prices, jumbo loans are needed to buy modest homes. If you buy a home in say, Cleveland, Ohio, chances are, that same home is going to cost you a pretty penny if you buy it in San Francisco. That’s because the median home value in Cleveland is $50,000, while it’s over $1 million in San Francisco, according to Zillow.

Conforming Loans vs. Non-Conforming Loans

Simply put, a conforming loan is a loan that meets federal guidelines. The federal government sets “conforming loan limits” for each county in the United States. Conforming loans are at or underneath these dollar limits that are set.

Jumbo loans, on the other hand, are considered non-conforming loans because they exceed the cap set by the government. In most counties in the U.S., jumbo loans are for mortgages over $417,000. But in pricier areas, like New York City, jumbo loans are for mortgages higher than $625,500.

Benefits of Getting a Jumbo Loan Right Now

Now is a great time to get a jumbo loan.

In the past, jumbo loans usually came with higher interest rates, since these kinds of loans are considered riskier than conforming loans. However, requirements and rates for jumbo loans have been steadily dropping. Both conforming and jumbo loan rates are unusually low right now, and it’s currently slightly cheaper to get a jumbo loan than a conforming loan.

The average rate for a non-conforming, 30-year fixed-rate loan is at 3.78%. For a jumbo, 30-year fixed-rate loan, that number is 3.68%, Bankrate reports.

“With jumbo loans, there are many more options and products to explore, unlike some of the options that come with conforming loans,” said Scott Eggen, Executive Vice President and Director of Capital Markets at PrimeLending. “Jumbo loan borrowers can explore several adjustable-rate mortgages that best fit their needs, which PrimeLending offers. Jumbo loan borrowers are in high demand right now because of their credit worthiness, strong reserves, and the opportunity to partner with them on a number of other financial services.”

If you’re considering an adjustable-rate mortgage instead, rates are also down. The average 5/1 adjustable-rate mortgage has fallen to 3.18% from 3.21%.

Requirements for Getting a Jumbo Loan

The requirements for getting a jumbo loan are similar to getting a conforming loan. Of course, whenever you’re seeking any kind of home loan, the higher the credit score, the better. In the past, the minimum credit score for jumbo loans was around 720-740. Today, that number is often closer to around 650, the Home Buying Institute reports.

Jumbo loan borrowers will also want to have a low debt-to-income ratio.  To figure out you’re your DTI ratio is, you can up all of your monthly debts and then divide that number by your monthly income. A DTI ratio that’s under 40% is usually desirable by lenders.

Just a few years ago, most jumbo loan lenders required a down payment of at least 20 percent. However, these days, some lenders will approve jumbo loans for as little as 10 percent, according to The Wall Street Journal.

If you’re thinking about purchasing a larger home, now is the time to buy. If you wait, interest rates might start to increase again. At PrimeLending, we’ve been committed to customer care and making home loans simple for 30 years. Get in touch with us today to learn about all of the products we offer.

 

from the PrimeLending blog, by Mandy Jordan