Jumbo loans are often used in competitive real estate markets and for financing high end properties. Investors use the jumbo loan, or jumbo mortgage, for large-sized investment properties in California. 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. That makes them a bit riskier for a lending company, but these loans have been gaining traction with investors since the recession in 2008.
Qualifying for a Jumbo Loan
If you have your eyes on a half million dollar home, but can only invest with a 10-15% down payment, you’re likely headed towards a jumbo loan. 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 for a jumbo loan in California 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 however 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 investors who go with a jumbo loan in California 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 talk things over.
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