They say play big or go home. With a jumbo mortgage, you get to play big AND go home – to a whole lot more home than you would with a conventional mortgage. In Grandpa’s day, a jumbo mortgage might also cost a whole lot more. Changes in the jumbo mortgage environment over the last few years combined with low mortgage rates make these loans much more palatable for savvy players.
What’s A Jumbo Mortgage?
Jumbo mortgage loans surpass the conforming loan limit, which is the maximum loan amount subject to guarantee by Fannie Mae and Freddie Mac. As of 2022, the conforming loan limit has increased to $625,000 in Michigan. Any mortgage over this amount is considered a jumbo loan. The conforming limit applies only to one-unit properties.
What are the Pros and Cons of a Jumbo Mortgage?
While jumbo loans typically require a higher down payment, credit score, as well as more reserves than a conforming mortgage loan, today’s jumbo loans, come with perks.
- The gap between interest rates on conventional vs. jumbo loans has narrowed and is sometimes nonexistent
- Loan-To-Value requirements aren’t as strict as they used to be.
- This means if you can afford a higher-value property you don’t need to sacrifice fluidity to buy it. Example: To purchase a $800,000 home with a conventional mortgage – which is limited to $625,000– you’d need to put an extra $175,000 down. With a jumbo loan at 10% down, you’d bring $80,000 cash to the table, freeing up $95,000 which will earn far more invested than the interest cost of the loan.
How Do I Get a Jumbo Loan?
- You’ll need a strong credit history, typically a FICO credit score of 700 or higher.
- You can get approved with a debt-to-income ratio as high as 43%, but these loans often have higher reserve requirements.
- Since jumbo loans don’t have private mortgage insurance (PMI) and thus pose a higher risk for lenders, a larger down payment is typically required.
- Like a conventional mortgage, the property’s appraisal must justify the price –you may need two appraisals to do so.
So, if you’re ready to “go big…and go home,” talk to a strategic partner to see if a jumbo loan is a fit.