Dream homes come in all sizes. “Jumbo” loan programs are for homebuyers that need a larger loan. Sometimes they are referred to as non-conforming because they exceed the standard conforming loan limits set by Fannie Mae and Freddie Mac. Jumbo investors offer either fixed rate and adjustable rate options for a variety of loan terms.
Obtaining a Jumbo loan provides the convenience of one loan and having only one loan payment. Some borrowers will opt to go with a conforming loan program and piggyback the transaction with a second mortgage. This option may work well if that second mortgage is for a smaller amount and if it’s at a comparable rate if you expect to that loan for an extended period of time. If you are expecting an influx of cash within the next year or two, then having two payments could be beneficial if you use those assets to pay off that second mortgage, with only the remaining conforming loan left. An experienced Loan Officer can help you look at both options and determine which best suits your short and long term goals.
What’s different with Jumbo loan financing compared to a conforming loan program?
Slightly higher interest rates: The loan sizes are larger, and with that is a greater risk should a borrower default for investor. Mortgage interest rates are higher with these programs.
Larger down payments are required: Most borrowers are not first time homebuyers coming to closing with minimal down payments. Minimum loan to values will depending on the loan size.
More loan documentation: As a result of a higher loan amount, an investor has more risk should the loan not be paid back. Expect to provide more loan documentation to your Loan Officer for these types of loans. Assets may require an additional bank statement. Most assets are required to come from the borrower’s own funds, although some will allow a small gift contribution. The investors require documentation to confirm that you have cash left after closing in the bank, which are called reserves. The reserves are based on your total monthly payment (PITI: principal, interest, taxes and insurance) and you may need as much as 24 months documented in liquid assets. If you’re self employed, not only will you need to provide tax returns for your business but you’ll need the most recent profit and Loss and balance sheets showing business standing since your last returns were filed. Every situation can be different and may require explanations and additional supporting documentation.
Credit scores: Although some investors will provide some limited financing for applicants with a 680 credit score, most requires 700+ and just like with conforming loan programs, you’ll get a better interest rate if your credit scores are 740 or greater.
Property nuances: Most of the time you’re looking at the same things that you would see on conforming loan guidelines. Guidelines are a bit more strict on homes on large acreages or any construction that’s not similar to the comparables in the neighborhood.
As you can see, the differences in obtaining a jumbo loan versus a conforming loan are pretty minor. Regardless of which loan program you select, we’re here to help you, every step of the way. If you have any questions, don’t hesitate to give us a call.