Most financial tools aren’t as aptly named as jumbo loans. One loan where technical language doesn’t get in the way is this one As the name suggests, jumbo loans are big. Jumbo loans differ from other lending options for more reasons than just the loan’s size.
What Are the Advantages of a Jumbo loan?
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Most people are unaware that traditional loans have limits because they don’t have to spend more than $500,000 on a home. If you reside in a region where average home prices are significantly higher than the national median (we’re looking at you, California), a jumbo loan may be required to purchase a home as other loans may not be available.
Jumbo loans allow you to purchase a variety of properties. A jumbo loan can be used to buy investment properties, second homes, and primary residences.
The absence of private mortgage insurance (PMI) is another benefit of jumbo loans. Even if the debt-to-value ratio is less than 80%, PMI typically isn’t required.
What Are the Disadvantages of a Jumbo Loan?
A jumbo loan is a non-conforming loan since it exceeds the Fannie Mae and Freddie Mac loan limits (2018 national average for a one-unit is $453,100). That means a jumbo loan isn’t guaranteed by Fannie Mae or Freddie Mac, which makes it a riskier venture for the lender. If there’s one constant in home mortgages it’s high risk equals higher cost.
Generally speaking, jumbo loans have a marginally higher interest rate than conforming loans. However, the interest rates are fairly competitive if the borrower has excellent credit, income, and other assets.
You’ll also need more money upfront. Although the minimum down payment requirement for conforming loans has been lowered, a jumbo loan still requires at least 10% of the purchase price. Other closing costs will also be higher. This is because the lender must review a borrower’s entire financial history and complete additional paperwork.
Another thing to be aware of is that lenders develop their own jumbo loan underwriting standards. This means that the criteria can differ greatly from one lender to the next. However, there is one prerequisite that is generally accepted: a high credit score. To be eligible, you must have a credit score of at least 680–700.
Why You Might Want to Consider a Jumbo Loan
As mentioned above, buyers with budgets well above the average home price use jumbo loans. You’ll probably need a jumbo loan if you reside in an area with high property values or are looking to buy a luxury home.
Questions to Ask Before Getting a Jumbo Loan
A borrower must be more cautious the larger the loan. Speak to a local lending expert if you are unable to find answers to the questions above.
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Why are jumbo loans not PMI?
Jumbo loans frequently do not require PMI because they typically call for a larger down payment. PMI is intended for homebuyers who put down little money However, since each lender will have a different down payment requirement, it is possible that your lender will insist on PMI in return for a higher down payment.
Do jumbo mortgages require PMI?
No. Only Better Mortgage conforming loans with a loan-to-value ratio (LTV) higher than 80% are required to have private mortgage insurance (PMI). Jumbo loans from Better Mortgage are exempt from the PMI requirement for loan-to-value ratios up to 89 percent. 99%.
Can you put 10% down on a jumbo loan?
Generally speaking, you can anticipate to put down at least 10% on your jumbo loan. Some lenders might demand a minimum 25% or even 30% down payment. While 20% down is a good benchmark, it’s always best to discuss all of your options with your lender.
How much is PMI on a $300 000 loan?
Example of Private Mortgage Insurance If you purchase a $300,000 home, you may be required to pay mortgage insurance of between $1,500 and $3,000 annually. This price is divided into equal monthly payments to make it more manageable. In this case, your monthly payment will probably range between $125 and $250.