Jumbo mortgage loan – How it works

You are currently viewing Jumbo mortgage loan – How it works

Jumbo mortgage loan, what is it? How is it different from the usual conventional loan? A jumbo mortgage loan has higher limits and is more complicated to close than a traditional mortgage.

A conventional mortgage is backed by government-sponsored Fannie Me and Freddie Mac, while federal agencies do not back a jumbo loan. You need a high credit score and an excellent loan-to-value ratio to get the best rates for your loan application. Usually, a 720 FICO score is enough to close the loan.

How do jumbo mortgage loans work?

Jumbo rates can be adjustable or fixed, similar to conforming mortgages. Fixed-rate is when your interest rates remain the same from the closing until the end of the mortgage term. An adjustable-rate mortgage, or ARM,  can change after three to five years.

Which is better for you? It depends on how long you want your jumbo mortgage loan term. For example, fixed rates come at 3.75%, while adjustable rates are pegged at 3%. The difference may seem small, but when you add up the months and years in the life of your loan, it will be a significant amount.

What are the jumbo mortgage loan requirements?

Down payment. The significant down payment amount protects the lender if the borrower defaults. Unlike conventional loans, where you can put in a 3% downpayment, with jumbo loans, you need to prepare as high as a 20% down payment. There may be banks that will allow you to give a 10-15% down payment, but it may come with a higher rate.

High Credit score. Lenders may approve your loan if you have a 680 credit score, but it may come with a higher interest rate. With a 720 credit score, you can prove to the lender that you are a low-risk borrower and, thus, can be relied upon to pay on time.

You may want to talk to our officers to help you start your way to getting your dream home.