Financing your dream home may seem daunting, but with the right loan, it can be more than achievable. In today's real estate markets, it is difficult as the limit imposed on a conforming loan may not be high enough to finance your purchase.
Mortgage companies offer a "jumbo loan" for borrowers looking to finance a home that exceeds the limit Freddie Mae and Fannie Mae set forth. Jumbo loans typically come with higher interest rates than conforming loans, but they also offer more flexible underwriting guidelines and a more comprehensive range of loan products.
The Top 10 Advantages of a Jumbo Loan
1. More Money Available
When you have a jumbo loan, you have higher loan limits, giving you more money to work with. If the LTV is 85 percent, the house is 85 percent financed by the lender and 15 percent owned by the borrower. When you have a non-jumbo loan, the LTV ratio is restricted to 90%. However, this limitation is removed when you take out a jumbo loan. Since the property serves as more collateral for the lender in a jumbo loan, they tend to be more willing to extend larger sums of money.
2. May Need Less Than 20% Down
Jumbo loans offer the choice of a 20% down payment or less, depending on the mortgage lenders. Private mortgage insurance (PMI) is sometimes required with a smaller down payment, but this extra cost is usually lower with a jumbo loan than a conventional mortgage. Significant savings can be achieved with various options depending on your income and assets.
3. A "Jumbo" Loans Are Available
Jumbo loans aren't just for civilians. Veterans can apply for a VA Jumbo Loan if they think they need one. They are not subject to loan limits but must meet specific criteria to qualify. If you qualify, you can enjoy all the benefits of a VA loan with the added perk of not worrying about how much the home costs.
4. Opportunity to Buy a Larger Home
Families grow and need change over time. If you think you will need more space in the future, a jumbo home loan allows you to buy a larger home than you would be able to with a conforming loan. It can save you the hassle and expense of moving again in a few years.
5. Opportunity to Own More Land
More and more people are seeking rural areas for their next home due to the growing number of work-from-home lifestyles and the demand for new construction. It might mean owning more land for homesteading, gardening, or simply having more privacy from neighbors. Jumbo loans offer the chance for borrowers to purchase a property with more land than what is available in most suburban communities.
6. Buy in More Desirable Markets
Many of the country's most appealing areas have home values considerably above the FHFA's conforming loan limits. Jumbo loans give choices that allow you to purchase a home in these more desirable areas without having to come up with a large down payment or paying for private mortgage insurance. This can pay off in appreciation when these markets continue to have high demand in the future.
7. Purchase a Luxury Home
You are dreaming of that perfect home by the beach or that ski chalet in the mountains. You may want all the amenities and features of a high-end home. A jumbo loan allows you to buy a luxury home without depleting all your savings for a down payment. By refinancing a jumbo loan, later on, you can even take cash out for home improvements or other investments.
8. Consolidate Home Financing
Borrowers who need large loans would be forced to use several loan types for one property, save years to pay cash upfront, or reduce conforming loan restrictions in their market. Jumbo loans offer the chance to consolidate multiple existing loans into a single, larger loan.
9. Explore Jumbo Renovation Loans
If you are looking to purchase a fixer-upper or need to make major renovations to your home, a jumbo loan with a rehabilitation component might be the right fit. With this type of loan, you can finance the purchase price of the home plus the cost of renovations all in one loan. This can save you time and money by rolling the cost of the renovations into your mortgage.
10. Finance Multi-Family Investment Properties
Consider purchasing a duplex, triplex, quad, or other multi-family property if you're seeking the chance to get the most out of a jumbo loan. You might also choose to live in one of the apartments while renting out the others or rent all of them to benefit from your property's investment potential.
Conclusion
A jumbo loan can be the right solution for many different types of borrowers. If you want to purchase a more expensive home, own more land, or buy in a desirable market, a jumbo loan could be a good option. There are also several jumbo loan products available that can meet your specific needs. Talk to a local mortgage lender about whether a jumbo loan is right for you.