Did your real estate agent mention that taking out a jumbo loan might help you purchase your dream home? Here’s what you’ll want to know about this type of home loan.

What Is a Jumbo Loan?

Did you know that there are rules regarding how much money you can borrow for your home loan? The Federal Housing Finance Agency sets a maximum loan amount for home mortgages, known as conforming loans, for each area of the country. If you want to take out a loan for more than the maximum conforming loan limit, you might want to consider a jumbo loan.

The maximum conforming home mortgage amount in Lane County, Oregon, is $548,250. That means that you cannot borrow more than that amount in a single conforming mortgage.

The jumbo loan is a unique type of home mortgage that lets you get around the conforming loan amount limits. Thus, you might be able to afford to buy that pricey home located within walking distance of the University of Oregon campus.

However, before your load up on Ducks-themed accessories, you should know that securing one of these loans is challenging. Lenders take a more significant risk on non-conforming loans because they aren’t eligible to be purchased, guaranteed, or securitized by Fannie Mae or Freddie Mac. What’s more, the economic uncertainty due to the pandemic makes lenders even shyer about approving jumbo loans since the bank assumes a significant risk if you default on your mortgage. They require you to prove that you are a terrific credit risk.

Qualifying for a Jumbo Loan

Although it’s undoubtedly more challenging to obtain a jumbo loan than a more traditional mortgage, they are available to people with a strong credit rating. In general, lenders focus on several different areas when deciding on your creditworthiness.

Experian notes that you should expect your lender to demand the following things to qualify for a jumbo loan.

  • High FICO score of at least 720 is ideal
  • Debt-to-income ratio not to exceed 36% is typical but some lenders go higher
  • Down payments of at least 10%
  • Additional cash reserves after Close required
  • Higher interest rates as compared to Conventional
  • Multiple appraisals for properties over $2mill
  • Substantial closing costs

As you can see, qualifying for a jumbo loan can be a daunting task. Still, it’s worth considering a jumbo mortgage if you meet the requirements and don’t want to delay purchasing your desired home. Schedule some time with your mortgage broker to discuss the ins and outs of a jumbo loan and how it might need your needs.

Don’t worry if you decide not to consider taking out a high-balance mortgage. There are other ways to finance an expensive home that won’t require you to obtain a jumbo loan.

Jumbo Loan Alternatives

Always keep in mind that it’s not usually a smart idea to take out home loans that will leave your family eating ramen noodles for the next thirty years. No matter how much you love a specific home, make sure your wallet can handle substantial monthly mortgage payments before you close on a house. That said, here are some common alternative ways to finance a costly house purchase.

Increase Your Down Payment

You can bring a mortgage amount back under the maximum conforming loan limit by putting more money into your down payment.

VA Eligible Borrowers

VA loans have no loan limits and can be used with Zero Down Payment, Interest Rate Reduction Refinances and for Cash Out Refinances. Often times, these loans will also offer superior interest rate terms, as compared to most Jumbo Loans.

Piggyback Loans

Some call it a 1st and 2nd Combo loan. It’s s creative way to stay within a conforming mortgage amount by taking a 2nd mortgage to go with the Conventional 1st mortgage. You’ll need a decent credit history and meet slightly more stringent debt to income ratio standards, as you’ll still be responsible for substantial monthly mortgage payments.

A mortgage broker has access to multiple types of piggyback loans. There is no such thing as the best type of piggyback loan for everyone’s situation. Take the time to discuss your financial needs and goals with your broker so you can be confident that your mortgage package fits your lifestyle.

Last Thoughts

Lastly, now you know what a jumbo loan is and how it can help you finance a home in Eugene. Whether you opt for a jumbo loan or one of its alternatives, make sure that you choose a mortgage that will help you to love your new home for years into the future.

Our home loan officers at Strategic Mortgage Solutions are pros at matching our clients with outstanding mortgages. We’ll happily explain your options so you can select the right home loan for your family. Contact us today to set up a friendly, no-commitment appointment.