Jumbo Loan in California: Are they for you?

Jumbo loans are often used in competitive real estate markets and for financing high end properties. The jumbo loan, or jumbo mortgage, gets its name from its large size. Here’s an overview of this loan type and how to determine if it’s for you.

What is a Jumbo Loan?

A jumbo loan is a mortgage that exceeds a certain dollar amount as determined by the FHFA. That loan size for 2017 is $424,100 in Redding, California. These loans are unique from conventional mortgages because they are non-conforming loans. Simply put, that means these loans do not “conform” to the guidelines set by Fannie Mae and Freddie Mac. Although they could be a bit riskier for a lending company, these loans have been gaining traction since the recession in 2008.

Qualifying for a Jumbo Loan

If you have your eyes on a half million dollar home, but don’t have significant capital for a down payment, you’re probably headed towards a jumbo loan. But to get the house of your dreams, first know what it takes to qualify. Your credit score will need to be 700 or more, and you’ll need a low debt-to-income ratio. There’s a few more hoops to jump through such as your income level, pay stubs, tax forms, and bank statements, but qualifying more simply has to do with a stellar credit score and the value of the house.

Jumbo Loan Rates and Down Payment

With the larger amount of money involved and homes that could be tough to sell, it’s no surprise that interest rates are slightly higher than conventional loans. Although, that margin has been decreasing in recent years. You should expect your loan rate to be .25% to 1.5% higher than usual. Jumbo loans in California do offer more down payment options. Keep in mind that there’s some advantages to making a higher down payment, but jumbo loans make room for grace if you only have enough to put down 10% to 15%.

Is a Jumbo Loan for You?

So, you’ve got an idea of what a jumbo loan is. Now, is it for you? As a rule of thumb most people who go with a jumbo loan make $250-$500k a year. They have a high income but haven’t accumulated plenty of wealth quite yet. If this sounds like you, we would suggest sitting down to crunch the numbers.

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