If you want to purchase a home worth $400,000 or more, you may need to get a jumbo loan to cover the cost. Jumbo loans offer the possibility to borrow large amounts of money. In most counties, jumbo mortgages have a $417,000 limit. Housing markets with high costs, such as San Francisco and New York, often have a limit of $625,500.
While a jumbo mortgage could help you purchase the home of your dreams, you need to research your options to find a loan with an affordable interest rate.
How Jumbo Mortgage Interest Rates Compare to Regular Mortgage Rates
Historically, jumbo mortgages have come with higher interest rates than regular mortgages. Since jumbo loans give you access to such large amounts of money, lenders charged higher rates to protect themselves and ensure that they earned profits.
Up until a few years ago, you could expect lenders to charge at least 2 percent more for jumbo loans. In some cases, they would charge even more.
Higher interest rates may have helped lenders protect themselves, but they made it difficult for many people to choose jumbo loans over traditional mortgages. Recently, that has changed.
Current Jumbo Mortgage Rates
Over the last half-decade, jumbo mortgages have become more affordable for home buyers. Interest rates can change daily, so it's impossible to specify exactly the rate for a jumbo loan. Typically, you can expect jumbo loans to have interest rates that are 0.2 to 0.5 percent lower than interest rates for 30-year fixed mortgages.
The lower interest rate for jumbo mortgages makes it easier for people to purchase homes that match their needs. People living in large cities usually need jumbo mortgages more often than people living in small cities. In San Francisco, home values have increased by 40 percent since 2006. Without a jumbo loan, you might have a difficult time buying a house in San Francisco.
Jumbo loans have become increasingly useful in smaller cities too. As more people in their 20s and 30s start to have children, the idea of purchasing a $500,000 home becomes more popular. If you want to purchase a house worth $500,000, you can't rely on a 30-year mortgage. You will need to get a jumbo loan. With today's jumbo mortgage rates, you may find that you save money by choosing a large house that doesn't qualify for a typical loan.
Qualifying for a Jumbo Mortgage
Although jumbo loan qualifications vary from lender to lender, you can safely assume that your lender will require two home appraisals and a down payment of 15 to 30 percent of the loan's amount.
In addition, lenders will check your credit score to determine whether they can trust you to repay such a large loan. If your credit score falls below 700, you may have a hard time securing a jumbo loan. Many lenders want to make sure you earn enough money to repay the loan. Having six months to a year of reserve cash will also make it easier for you to get a jumbo loan.
Since interest rates and qualifications vary, you should compare offers from several lenders. Take the first step by getting pre-approved by mortgage lenders that give home buyers jumbo loans. Then, you can compare interest rates to see which lender gives you the best deal. Even 1 percent matters quite a bit when dealing with this much money, so choose your jumbo mortgage wisely.
If you're ready to buy the house of your dreams, get a low-interest jumbo loan that will help finance the purchase.