Understanding a Jumbo Loan—Should You Apply for One?

 If you wish to purchase a property that leans towards the more luxurious side of real estate, but you don’t have the funds to support your endeavors, it’s all the more reason to apply for a loan. However, you shouldn’t aim for just any ordinary loan given your circumstances.

Instead, it will help to seek a jumbo mortgage since the home you wish to own most likely exceeds the limit provided by Fannie Mae and Freddie Mac, government-backed mortgage companies. They serve to purchase many home loans in the US and offer them to willing investors.

In line with that, you shouldn’t let go of your life-long dream to acquire a mansion under your name or an expensive property situated in the most secure neighborhoods in America just yet. Keep reading below to learn more about a jumbo loan and why you might need one. 

Defining a Jumbo Loan

A jumbo loan is a housing loan that can provide an individual with a massive loan amount compared to what most people typically receive approval for when handling a mortgage. Whether your goal is to purchase a primary home, vacation home, or investment property, you are free to use a jumbo loan accordingly.

Your mortgage lender and the location of the house you wish to purchase will affect the maximum amount you can borrow, including other qualifying requirements. Since not everyone always aims for a jumbo loan because they have more than what they need from regular home loans, it will be more challenging to look for reliable jumbo loans in the market.

Besides that, jumbo loans are similar to traditional home loans, including their payment schedules and other related information. Depending on your preferences, you could follow a fixed or adjustable rate for your jumbo mortgage while addressing different terms and policies.

Since the middle of December 2020, the loan rates for jumbo loans have increased significantly compared to conforming loans. The changes involve about 50 basis points on average, which equates to 1/2 of 1%.

What Are the Limits of a Jumbo Loan?

After discovering the house of your dreams has a total price that exceeds your borrowing limit, you will be better off applying for a jumbo loan to get what you want while it’s still available. Keep in mind that for 2021, Fannie Mae and Freddie Mac set the limit for conforming loans to $548,250.

What Are the Rates of a Jumbo Loan?

Like the interest rates of conforming loans that tend to rise and fall depending on the current situation, jumbo loans go through the same conditions because their rates can fluctuate too. That’s why you should prepare yourself to face higher or lower mortgage rates when you seek a jumbo loan compared to when you settle for a conforming loan. 

As of mid-December 2020, for example, if you wish to repay a jumbo loan within the next 30 years, the average rate falls at 3.42%. Meanwhile, a 30-year fixed-rate program for opting for a conforming loan is at 2.96%.

Conclusion

If you’re sure about claiming your dream home and its price exceeds the borrowing limit offered by Fannie and Freddie, that’s the only time you may want to think about applying for a jumbo loan. That way, you can guarantee you can move into the property you’ve had your eyes on for a long time sooner rather than later. But if you’re still second-guessing your decisions, you may want to seek mortgage solutions from a professional to receive sound advice regarding your potential investment.

Are you looking for first-time homebuyer programs in Massachusetts? ACB Mortgage Solutions is a brokerage firm offering services for our residential and business investor clients. Get in touch with us today to schedule an appointment!