What People Don’t Know About Jumbo Loans in California

Jumbo loans are for big spenders. But competitive real estate markets are causing this loan to show up more regularly, even if you aren’t buying a mansion. Here’s what most people don’t know about jumbo loans in California.

Myth #1: Jumbo Loans Aren’t Relevant

The median value of a home in California is more than double the median value of a home in the United States as a whole. Typical home loans are secured by government-sponsored entities if they conform to loan requirements, but loans with higher amounts are not secured. These are called jumbo loans. And they are showing up more than ever in California.

A few counties have higher jumbo loan limits than others (like San Francisco and Los Angeles), but the typical qualifying amount for a jumbo loan is $424,100. Investors in smaller cities like Redding frequently use this loan type even though they don’t conform to the guidelines set by Fannie Mae and Freddie Mac.

Myth #2: Lenders Won’t Offer Jumbo Loans

Jumbo loans are risky for a lending agency, because there’s less liquidity for jumbos on the secondary market. Plus there’s a large amount of money involved. But ever since 2008, demand for the jumbo loan has been increasing among investors, so lenders are more likely to comply now than previous years.

Competition in the Redding real estate market has moved jumbo loans away from big banks and available for lending agencies across the board.

Myth #3: You Need a Huge Down Payment

It’s commonly perceived that jumbo loans require a large down payment of 20-30%, in order to compensate for the risk that’s involved. But that’s not always the case.

If you have your eyes on a home over $424,100, but can only invest 10-15% for a down payment, you can still qualify for a jumbo loan. Your credit score will need to be in the upper 600’s, and the lending agency will also calculate your debt-to-income ratio and appraised value of the property during the underwriting phase.

However, the biggest factor for qualifying comes down to your ability to make the monthly mortgage payments. Yes, a large down payment can help you avoid private mortgage insurance, but it’s not required.

Myth #4: High Interest RateS

With the larger amount of money involved and homes that could be tough to sell, it’s no surprise that people expect interest rates for jumbo loans to be slightly higher than conventional loans. Although, that margin has been decreasing in recent years, making it less of a significant factor. Your loan rate will typically only be .25% to 1.5% higher than usual.

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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