Jumbo mortgage loan – How it works

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Jumbo mortgage loan, what is it? How is it different from the usual conventional loan? A jumbo mortgage loan has higher loan limits and it also is harder to close than the usual conventional mortgage.

A conventional mortgage is backed by government-sponsored Fannie Me and Freddie Mac while a jumbo loan is not backed by federal agencies. To get the best rates for your loan application, you need to have a high credit score and your loan-to-value ratio much below as well. Usually, a 720 FICO score is enough to close the loan.

How do jumbo mortgage loans work?

Jumbo rates can be adjustable or fixed, similar to conforming mortgages. Fixed-rate is when your interest rates remain the same from the closing until the end of the mortgage term. An adjustable-rate mortgage, or ARM,  can change usually after three to five years.

Which is better for you? It depends on how long you want your jumbo mortgage loan term to be. For example, fixed rates come at 3.75% while adjustable rates are pegged at 3%. The difference may seem small but when you add up the months and years in the life of your loan, it will be a significant amount.

What are the jumbo mortgage loan requirements?

Down payment. Unlike conventional loans where you can put in a 3% downpayment, with jumbo loans you need to prepare as many as 20 down payments. The reason behind the big down payment amount is that no private mortgage insurance will protect the lender if the borrower defaults. There may be banks that will allow you to give a 10-15% down payment but it may come with a higher rate.

High Credit score. With a 720 credit score, you will be able to prove to the lender that you are a low-risk borrower, and thus, can be relied upon to pay on time. There may be lenders who will approve your loan if you have a 680  credit score but it may come with a higher interest rate.

You may want to talk to our officers to help you start your way in getting your dream home.