Whether you are using a mortgage as part of your financing of a new (for you) home, or in order to finance, it is wise, to fully understand your alternatives, and consider them carefully. Since for most people, a home is their single largest financial asset, doesn’t it make sense to proceed wisely, carefully, and in an informed manner? While there are numerous types of mortgages, let’s discuss those referred to as Jumbo Mortgages, and consider them in relationship to Conventional Mortgages. Because of the prices of houses today, a far larger proportion of houses sold or refinanced qualify for Jumbo – status, and there are pluses and minuses, you should understand and appreciate.
1. More people need one today than previously: Prices of homes have gone up, and many have significantly in the last couple of years. In many areas of the country, you can only borrow up to $417,000 to qualify for a conventional type of mortgage, although in some of the more expensive regions of the country (the determination is generally made, county – by – county), that limit is up to $625,500. (Note: These numbers may be changed, based on regulations, etc)
2. They may be harder to qualify for: Each lending institution determines its own guidelines, to some degree, and some have often created different qualifications for the Jumbo Mortgages. These may include items such as downpayment (or, at least flexibility), credit score, or cash – in – hand. For example, a lending institution may ask to see, at least a couple of months payments readily available in the bank, for a regular one, but may require as much as six months reserve or more, to qualify for the higher limits.
3. Always be aware of bank come – ons!: Although not as prevalent today as during the earlier part of the century, some lending institutions artificially relax requirements, in order to lure borrowers. Remember, a lower downpayment, translates to higher monthly carrying charges, as well as usually a larger total amount due. Consider your personal comfort zone, and not merely what a bank may tell you, that you qualify for!
4. Interest rate: Although earlier this year, Jumbo Mortgages actually carried a lower interest rate, it is far more usual, to witness a higher interest rate charged for the privilege of a larger loan. Generally, this is between 0.1% and 0.4%.
5. Refinancing considerations: Most experts recommend only borrowing up to the limits of the Conventional Mortgage, when one is refinancing. Most people refinance to lower their payments (because interest rates have gone down), but if you borrow a larger amount, your carrying charges, and the amount you owe, increase, and your equity is diminished/ reduced.
Think carefully, discuss with a financial adviser, and a mortgage professional, the pros and cons, of making your choice. Do what’s comfortable and best for you, and do so, with your eyes – wide – open!