Should You Get a Jumbo Loan or Not: Here’s What to Know
Are you looking to buy a property but it’s really expensive? You will need to take out a loan, but a traditional mortgage won’t cut it. This is where jumbo loans come in.
A jumbo loan is available for millions of dollars. Most of the residential property mortgage needs in the US are set within guidelines by government-sponsored financing entities through the Federal Housing Finance Agency (FHFA).
Conforming loans are those that conform to these standards. However, if the property is too expensive to meet these guidelines, they are still attractive to lenders but don’t conform to the set limits. Therefore, this should be securitized privately and at higher interest rates.
What Are the Limits of Jumbo Loans
If you don’t live in a high-cost area and you want to borrow more than $500,000, you need a jumbo loan. Mortgage lenders, banks, and other investors can provide you with a jumbo loan, and they will set their own maximum limits.
Are You Qualified for a Jumbo Loan?
Qualifying for a jumbo loan is a bit of a challenge because lenders are more careful about loan approvals. Typically, a jumbo loan will need:
- Down payment: 20% or more.
- High credit scores: a FICO score of 700 or higher is ideal.
- Reserve assets: They must be enough to cover six months of payments.
- Sufficient income: A good starting point is a 43% debt-to-income ratio.
Still, lenders have their own limits when it comes to jumbo loans, which is why it’s crucial you need to speak to a lending institution to figure out what criteria they have. The good news is, there are situations when you can qualify even if one of the factors listed above isn’t perfect.
Do You Need a Jumbo Loan?
Jumbo loans are perfect for luxury homes or unique properties. They can also be used for normal houses in expensive areas.
The thing is, just because you can take a jumbo loan doesn’t mean you should. Keep in mind: a bigger loan will have higher interest charges. Therefore, it’s crucial you understand first how much you’re paying for a property when you take into consideration the interest costs.
What Are Other Loans You Can Consider?
If you’re thinking of getting a jumbo loan, know that it’s not the only loan available for you if you want a bigger house. FHA loans, for one, are easy to qualify for, and they have a 3.5% down payment.
On the other hand, VA loans allow service members and their families to take out a loan with no down payment. Down payment assistance can help reduce the amount you borrow, and the funds from this type of loan will come from various sources.
Go Jumbo or Not?
If you’re torn between taking out a jumbo loan and conforming loans, explore your options. Jumbo loans can help you get the house of your dreams, but they have stricter requirements you need to comply with. It’s best to keep an open mind and explore other loan options for you. To better help you through the process, consult a professional.
If you need more information about a jumbo loan in Michigan, EST Home Mortgage in Kalamazoo can help. We have a fast and highly efficient mortgage process and diverse product options for you. Get started with us today.
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