Jumbo Loan: Go Big Or Go Home?!

Jumbo Loan: Go Big Or Go Home?!

You’ve moved up in the world; you have a good income. Now, you want a home that shows how far you’ve come. Shopping for a mortgage, you may be surprised to learn that the cost of your dream home is just too high for you to qualify for a conventional “conforming” loan. That’s when the jumbo mortgage comes in. To use a modern-day analogy, if mortgages were fast food, the jumbo loan would be on the “super-size” menu.

Jumbos are specifically tailored to meet the needs of individuals who need to finance a home that falls outside conforming loan limits. So what is this limit? For conventional loans for single-unit houses in most areas, the current limit is from $417,000 to $625,000, depending on whether your area is a “high cost” or “low cost” area; for an FHA loan, the limit is $729,750. These limits are subject to change as the economy changes and based on the area where your home is located; your lender can give you the specific rates for your area.

The primary advantage of a jumbo mortgage is that it’s often the only way to obtain financing for your higher-cost luxury home. In fact, it may be the only way for you to get any financing for your home unless you have a substantial down payment that brings the amount of the loan within conforming limits.

So what are the disadvantages? Well, they’re actually pretty intuitive:

  • Because the loan is higher – and that means more risk for the lender – interest rates are usually higher than the rates available with traditional, conforming loans.
  • Your loan is bigger, interest rates are likely higher – that means your monthly payment is going to be larger than you’d have with a conforming loan (of course, most of that increase is due to the increased cost of the home).
  • Again, because the risk is greater, jumbo loans typically have more stringent income and credit requirements that must be met in order to qualify for the loan.
  • Many banks are unwilling to write jumbo loans, which means you’ll have to find a specialty lender – not too difficult, since there are many reputable lenders who are willing to handle jumbo mortgages.

Jumbo loans have risen in popularity in recent years as more and more home buyers have begun to see their homes as real investments in the quality of their lives. If a luxury home is in your future, the jumbo option is a great way to make your dream home a reality.