2017 Guide to Finding the Best Jumbo Loans & Jumbo Mortgage Rates
Believe it or not, millionaires and billionaires do not all pay for their palatial homes entirely in cash. They get mortgages, too, and these ginormous mortgages are known as jumbo loans or jumbo mortgages.
It is a rather smart strategy. Getting jumbo loans or jumbo mortgages instead of paying for a multi-million dollar home entirely in cash helps you maintain some cash flow. Instead, you can make a reasonable monthly payment on a jumbo loan and keep some cash reserves.
Of course, it is not just the extremely rich who search out jumbo loans and jumbo mortgage rates.
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Middle class or upper-middle class buyers may find a home they want to buy, but they may be unwilling to pay for the entire thing or a large portion of it in cash. Even with a substantial down payment and excellent credit, they will still have to search out a jumbo loan and jumbo loan rates.
So that may leave you wondering: what exactly are jumbo loans? At what point does a regular loan become a jumbo loan? These questions and more, including how to find jumbo mortgages and jumbo mortgage rates, will be answered in this article.
What Is a Jumbo Loan? (Understanding the Difference Between a Jumbo Mortgage and a Conforming Mortgage)
As the name suggests, a jumbo loan is massive. But massive in comparison to what? To clearly understand what exactly jumbo loans are, we must understand the institutions required to fund them.
A mortgage works as follows. Banks loan money to individuals hoping to buy a home, since purchasing homes entirely in cash would make homeownership inaccessible for most Americans.
In return, the borrower makes monthly payments over a fixed amount of time and pay for the privilege of borrowing this money with interest. In this sense, jumbo loans operate the same way. If you have a jumbo loan, you will still be obligated to do these things.
Where a jumbo loan differs is in its relationship to the government-sponsored enterprises (GSE) Fannie Mae and Freddie Mac. In order to keep credit flowing, these government institutions buy mortgages from financial institutions so that they are freed up to keep lending out money. If these banks kept these mortgages on their books, they would be more hesitant to loan out more money until their existing loans were paid back.
Of course, these government-sponsored enterprises will not buy just any old mortgage. While there are a few specific requirements for a loan to be bought, we will be focusing on loan limits, which is the variable relevant to jumbo loans.
Loans that do not meet the requirements set by Fannie Mae and Freddie Mac are referred to as non-conforming loans and those that do are known as conforming loans. A loan that is non-conforming specifically because of its amount is known as a jumbo loan.
The cut off between a regular loan and a jumbo loan varies by county and by whether or not the county is in what is known as a high-cost area. You can find the loan limits for conventional mortgages on the Fannie Mae website. Generally speaking, the loan limit is $417,000 – $625,000.
Why Are Jumbo Mortgage Rates Sometimes Higher? (The Reason for Higher Jumbo Loan Rates Compared to Regular Mortgage Loan Rates)
Let’s assume someone wants to buy a multi-million dollar home with enough money for a large down payment and a terrific credit score. When that person goes to find jumbo mortgage rates today they will be surprised at how much higher those jumbo mortgage rates are compared to the mortgage rates they would get for a conforming loan.
Why are jumbo mortgage rates higher? Shouldn’t the lender extend the same competitive interest rate with their jumbo loan rates as they would if the loan amount were lower? Especially if the person’s financial situation indicates they have a good credit history and they are good for the money.
It comes down to a very important factor: whether or not the borrower will be able to get their money back.
The luxury home market is a bit more subjective, and difficult to predict, than the housing market for conventionally priced homes. As a result, these large homes with their jumbo loans would take longer to sell, making it difficult for the bank to get their money back. At the end of the day, it does not matter whether the owner’s credit score is terrific.
To mitigate this risk, lenders who offer jumbo loans offer higher jumbo mortgage rates, and sometimes they require an even larger down payment with a jumbo loan than they would with a conforming loan.
That said, we will explore how you can get competitive (even cheap!) jumbo mortgage rates in this article. In recent years, the interest rates on jumbo loans have been giving the rates on conforming loans a run for their money — even beating them when it comes to how low they are.
Despite the potential issues with reselling, some banks are willing to offer a lower rate if people looking for a jumbo loan meet specific requirements (like a higher down payment and a high credit score).
Where Can I Find a Jumbo Loan? (Financial Institutions That Provide Jumbo Loans and Jumbo Mortgages)
Finding financial institutions that offer jumbo loans is not difficult. Qualifying for one (and at a reasonable price) is the difficult aspect. You can ask your regular financial institution or explore your options.
The current mortgage rates today for a 30-year fixed conforming mortgage is 3.821 percent APR. It is a little trickier to pin down jumbo mortgage rates today because there are a number of factors and variables to take into consideration, but some banks provide estimates based on assumptions about your down payment and credit score.
Qualifying for a Jumbo Loan (How Can I Get a Jumbo Mortgage with Competitive Jumbo Mortgage Rates?)
For most jumbo loans and great jumbo mortgage rates, applicants must have a great credit score (700 or higher), their debt-to-income ratio must equal out to 43 percent or less, and they must have six to twelve months of payments in reserve.
Another reason that some banks are willing to offer jumbo loans for a lower rate is for competitive reasons. The supply of jumbo mortgages is relatively limited and banks want you to choose them, so they will drive down their jumbo mortgage rates in order to be competitive.
In a way, banks prefer to have jumbo loans on their books, because more attractive borrowers are usually applying for them. Those looking for a jumbo mortgage typically have more money saved, high credit scores, and a lot of assets, making them an appealing and safe borrower for banks.
Jumbo Mortgage Rates Today (Banks That Offer Jumbo Loans and Their Jumbo Mortgage Rates)
Bank of America Jumbo Loans
Bank of America offers jumbo loans to its customers and interested potential borrowers. While the jumbo mortgage rates that you receive will depend on your personal financial situation and credit history, Bank of America offers a baseline with some jumbo loan rates on its site.
If you wish to skip looking at estimated jumbo mortgage rates, you can see if you prequalify for a jumbo loan directly through the website. You can also talk to a mortgage specialist about jumbo loans by giving them a call, scheduling an appointment, or getting a call back. The phone number is available on their jumbo mortgage web page.
You can find helpful information related to jumbo loans in relation to conforming loans on the Bank of America website, similar to the information found in this jumbo mortgages article.
Jumbo mortgages can be secured for primary residences, secondary residences, and vacation homes; consumers are not limited to the number of homes they can get with a jumbo loan so long as they meet the approval requirements.
The jumbo mortgage rates today provided by Bank of America are broken up as follows.
- A 30-year fixed jumbo loan carries an APR of 3.707 percent. The monthly payment on this jumbo mortgage would be roughly $3,306.
- A 15-year fixed jumbo loan carries an APR of 3.427 percent. The monthly payment on this jumbo mortgage would be roughly $5,094.
- A 5/1 ARM variable jumbo loan carries an APR of 3.5 percent. The monthly payment on this jumbo mortgage would be roughly $2,865.
These are jumbo mortgage rates that are subject to change, and which assume the applicant has an excellent credit score of 740 or more. With the variable jumbo loan, the interest rate changes every five years.
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U.S. Bank Jumbo Loans
U.S. Bank also offers jumbo loans to its customers and potential customers. U.S. Bank provides the option to chat with a mortgage specialist about their jumbo loan offers.
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Interested individuals can also meet in person to discuss a jumbo mortgage and jumbo mortgage rates with a U.S. Bank mortgage professional. Their phone number can be found on the U.S. Bank jumbo loans web page.
As you can see from the jumbo mortgage rates cited in this article, despite the expected tendency for jumbo loan lenders to provide higher jumbo loan rates to mitigate risk, recently jumbo loans rates have been lower or near the rate for conforming loans.
U.S. Bank is one of the lenders offering these kinds of jumbo loan rates. Earlier in the article, we mentioned that the average APR on a 30-year fixed conforming loan is 3.821 percent APR. U.S. Bank’s jumbo mortgage rates are as follows.
- For a 30-year fixed jumbo loan with U.S. Bank, the jumbo mortgage rate is 3.771 percent APR.
- For a 20-year fixed jumbo loan with U.S. Bank, the jumbo mortgage rate is 3.654 percent APR.
- For a 15-year fixed jumbo loan with U.S. Bank, the jumbo mortgage rate is 3.412 percent APR.
U.S. Bank also allows you to calculate your monthly jumbo mortgage payment using these jumbo mortgage rates. Keep in mind that these jumbo loan rates make assumptions about your jumbo loan.
The jumbo mortgage rates assume that you are getting a $500,000 loan with a 20 percent down payment in addition to other specifics about fees that you can find on the website.
There are also specific requirements that those applying for a jumbo loan with U.S. Bank must meet. They should have a FICO score of 700 or higher. The maximum debt-to-income ratio those applying for jumbo loans with U.S. Bank must have is 45 percent.
The required reserve amount is up to 20 percent of the loan. You are also required to have a down payment of around 20 percent or more for your jumbo mortgage. A property appraisal is also required.
Quicken Loans Jumbo Loans
Quicken Loans provides jumbo loans as well. The mortgage lending company advertises its offer of low jumbo mortgage rates, although you will be hard-pressed to find estimates on the website. Instead, you must fill out the form on their site or call a representative by using the number available on their jumbo mortgages page.
The Quicken Loans jumbo loan form asks for you to fill out several fields to provide a basic picture of your situation. You will be required to indicate your mortgage goal (buying a home in a couple of months, researching a home, etc).
You will need to indicate how much you wish to borrow for your jumbo mortgage and the value of the home you wish to buy. You will also need to provide your name and your zip code in addition to other administrative questions.
A minimum credit score of 700 is required to qualify for a Quicken Loans jumbo loan. There are special perks available for veterans, and you can benefit from their Closing Costs Cutter when getting your jumbo mortgage.
Jumbo Loans and Jumbo Mortgage Rates Are Expected to Be Affordable for Some Time
On the one hand, a jumbo loan is not a conforming loan, meaning banks cannot sell them off to government-sponsored enterprises that will free up their lending room. On the other hand, those who look for jumbo loans are typically people in rather comfortable financial situations with a number of assets that make them a desirable borrower to lenders.
Current dips in the global stock market are likely to keep jumbo mortgage rates low. The Wall Street Journal predicts they will remain under 4 percent for a while longer, making it an attractive market for those who are looking to use a jumbo loan to finance their luxury home purchases.
Also according to The Wall Street Journal, while such a market limits the amount of cash people have to spare on enormous homes, people often turn to real estate as a safe investment when the market is in turmoil.
On the other hand, the fear that interest rates will go up (and the belief that now is the time when jumbo mortgage rates will be at their lowest) may spur people to buy as much property as possible while borrowing is cheap and before there is a real estate bubble.
It appears that whether it’s to buy your spacious home or find a safe investment for your money, now’s the time to snatch up a jumbo loan.
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