The jumbo loan is truly the big leagues: There are fewer limits if you reach for the sky. However, with great power comes great responsibility. There are certain jumbo loan requirements that you need to understand before diving into the market full force. Here are three things that no one tells you about the jumbo loan that you need to know.
1. Will a fixed interest rate on a jumbo loan buy me another house?
You may think that you get a lower interest rate on a jumbo loan, but when you look at the rates, you will find that banks actually try to charge you more for borrowing more money. Banks consider larger loans a bigger risk, and they charge you for this risk.
When you take on a jumbo loan, you have to seriously consider the value of the adjustable rate mortgage. Although many people consider the adjustable rate a gamble, the real loss is if you take on a fixed rate without thinking deeply about the money that you are giving to the bank for no extra value. Over a 30 year mortgage, you may have a two percent rise on your interest rates between a jumbo fixed and a jumbo arm, a rate difference that will translate into an additional $1,000 out of your pocket per month on a one million dollar loan.
If you are willing to take on the responsibility of a jumbo loan, then you should be willing to do the extra market research and personal administration that will determine if an adjustable rate may be better for you.
2. Am I trying to negotiate the price down if I am on the fence of a jumbo and conforming loan?
The increased interest rate on a jumbo loan is nothing but an extra charge if you are on the edge of the conforming loan limit. Even if you compare the adjustable interest rate on a jumbo loan to the best rate of a conforming loan, you still come out ahead on the conforming loan. You also gain the ability to possibly subsidize your loan with various programs that only work with conforming loans.
Simply taking the time to negotiate with your agent and your seller may save you enough money to duck back down below the conforming loan limit. You need to have a fairly insightful knowledge of the market to understand how to negotiate below the line, and you should take the time to do this research. Finding the right real estate agent is also a great way to improve your chances of finding properties and sellers that you can negotiate on. However, you should not expect your agent to serve as your financial advisor as well. After all, it is in the interests of your agent for you to have a jumbo loan no matter what.
Nine out of ten lenders in today’s market is the federal government, with some studies stating that the government is behind 97 percent of all home mortgages, and the majority of these are conforming loans. The FHA, the VA, and the Navy Federal Credit Union all seem to give precedence to people with less money who stay under the conforming loan umbrella. You should take the time to see if you qualify for these subsidies under the conforming umbrella. Negotiate prices down on your preferred housing before you commit yourself to a jumbo loan that leaves you completely on the hook for all of the responsibility.
3. Are my personal finances in order?
In order to even qualify for a jumbo loan, you must pass a much more rigorous gauntlet of financial scrutiny. Banks do not believe that you are automatically more responsible just because you are borrowing a larger amount of money; as a matter of fact, they may actually trust you less. Your financial situation must be in order.
You can start by checking your credit report. Keep in mind that mortgage lenders look at a different credit score from the one that everyone else considers valid. Although you cannot see this mutation of the credit score, it is affected by your FICO score. The improvement of your credit means six or even seven digits on the money that you will pay to the bank in interest over the life of a jumbo loan.
After you check and improve your credit, you must begin saving as much money as possible and reducing your expenses from a monthly standpoint. Even if you think that you are in the clear with your down payment and closing costs, look through your expenses as line items and reduce them as much as possible.
The added responsibility of a jumbo loan separates the real investors from the fakes in the real estate market. Do not take anything for granted if you are looking at the big money. Go over all of the paperwork that your potential lenders give you, and make lenders compete for your business.
2 Point Highlight
Over a 30 year mortgage, you may have a two percent rise on your interest rates between a jumbo fixed and a jumbo arm, a rate difference that will translate into an additional $1,000 out of your pocket per month on a one million dollar loan.
Even if you think that you are in the clear with your down payment and closing costs, look through your expenses as line items and reduce them as much as possible
