Many people go into the home buying process expecting that they will be taking out regular conforming loans—and are surprised to discover that they need a jumbo loan to purchase a new property. If you are thinking about applying for a jumbo mortgage, you may feel nervous, but you will find it is not all that different from applying for a conforming loan. Here are a few things you should know before you decide to proceed.
1. Jumbo loans tend to involve more paperwork.
For starters, it is helpful to know before you apply for a jumbo loan that the paperwork and legwork involved can be quite extensive. More documentation may be needed to prove you qualify for a jumbo loan than you would have to provide for a conforming loan.
While this can be daunting, having the right mortgage company on your side can make an enormous difference. At HPI Financial, we can walk you through the application process step-by-step, helping you gather what you need to successfully obtain a jumbo loan.
2. The requirements to qualify for a jumbo loan are stricter.
Because jumbo loans are more risky than conforming loans, lenders want to make sure you are up to paying them off. You will need to show that your debt-to-income ratio is around 40-43%. Your credit score in most cases should be 680 or higher. You also may need to show you have up to 12 months of reserve funds in the bank.
3. Interest rates are not generally as high as you might expect.
Surprisingly, even though interest rates are higher on average for jumbo loans than they are for conforming loans, they are often very nearly in line. So, you may actually not be paying much more in interest than you would for a conforming loan.
4. Down payment and closing costs requirements tend to be higher.
Jumbo mortgage costs do tend to be higher are with respect to down payments and closing costs. So be prepared to pay more upfront for a jumbo loan.
5. You probably won’t need to pay for PMI.
One area where you might save money with a jumbo loan is with private mortgage insurance (PMI). There are some lenders who require PMI for jumbo loans, but it is not very common. So that is one less monthly cost to worry about if you do decide to go this route.
Jumbo loans have their pros and their cons, as you can now appreciate. Not sure whether a jumbo loan or a conforming loan is right for you? HPI Financial can help. Call us today at 844-671-9947, and we will go over your mortgage options with you to help you figure out the best choice.