Comparing Jumbo Loans and Conventional Mortgages, Part 1

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Readying Yourself for Home Closing Day, Part 2
October 13, 2020
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For those who are in the mortgage and homebuying market for a larger and more expensive home than usually covered, the most common program utilized is known as the jumbo loan. Available for larger loan amounts, ranging all the way up into the millions, jumbo loans are commonly used by individuals or families with higher net worth as they move through the homebuying process.

At VIP Mortgage Inc, we’re proud to include jumbo loans among our wide selection of mortgage loan options, with financing up to $2.5 million for qualified buyers under this program. How do these loans differ from conventional loan types, and is a jumbo loan a good choice for you based on your needs? This two-part blog series will go over everything you need to know here.

Basics and Qualifications

In certain broad ways, jumbo loans and conventional loans are actually pretty similar. They require the same kinds of hoops to jump through for qualification, from credit score and history to income, down payment and many others.

As we noted above, however, jumbo loans come with the possibility of far higher loan amounts. Most conventional loans are limited to right around $500,000 under current laws, but jumbo loans can stretch into the millions easily. For this reason, their specific qualification thresholds are often higher, which we’ll get into below.

Conforming Vs Non-Conforming

One of the key practical differences between these loan types is whether they are conforming or non-conforming. This refers to whether loans fall inside or outside the Federal Housing Finance Agency’s loan restrictions – if they do, they will not be backed by Fannie Mae or Freddie Mac and will therefore be considered non-conforming.

Jumbo loans are exclusively non-conforming, meaning they do not have this backing. However, they do still generally adhere to guidelines for qualified mortgages from the Consumer Federal Protection Bureau, and those taking them out from reputable lenders do not have to worry about their legitimacy. Meanwhile, conventional loans can be either conforming or non-conforming depending on other conditions.

Down Payment Considerations

One other significant difference between jumbo and conventional loans is the way their down payments work. While many conventional loan programs allow for much lower than 20% on a down payment depending on the borrower’s finances, jumbo loans tend to be firm in this 20% requirement no matter what. This is because the lender is taking a significantly larger risk than they would be with a much smaller loan amount that’s also conforming – it’s just a simple reality that you have to deal with if you’re in this stratosphere, but luckily those at this level are often able to afford this without concern.

For more on the differences between a jumbo loan and conventional mortgage, or to learn about any of our mortgage rates or programs, speak to the staff at VIP Mortgage Inc today.

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