Jumbo Loan Vs. Conventional: Interest and Qualifying

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In part one of this two-part blog series, we went over some of the basic differences between conventional loans and jumbo loans. While the former is one of the most common mortgage loan types out there, the latter is a mortgage program allowing for buyers of higher-value homes to obtain the funds they need.

At VIP Mortgage Inc., we’re happy to offer a variety of mortgage rates and loan types, including jumbo loans for amounts ranging up to $2.5 million. How do these loan types differ in terms of interest rates, how do you qualify for a jumbo loan if it’s your goal, and should you be going for a jumbo loan given your circumstances? We’ll cover all these areas in part two of our series here.

Interest Rate Differences

In past decades, there were huge gaps in interest rates for jumbo loans compared to conventional loans. The former would be far higher than the latter, with lenders building this extra percentage in to protect themselves as they loaned larger amounts.

Over the years, however, this gap has shortened. Generally speaking, jumbo loans do still come with higher interest rates than conventional mortgages – but not by all that much. If you’re on the fence between two properties, one that requires a conventional loan and the other that requires a jumbo loan, interest rate alone should not be the factor that pushes you one way or the other.

Qualifying for a Jumbo Loan

There are a few qualification areas you must meet to obtain a jumbo loan:

  • Credit score of at least 700 (some lenders require 720, others may drop as low as 670 or 680)
  • A debt-to-income ratio no higher than 43%, or sometimes 40%
  • Cash reserves that can cover a year of mortgage payments (for most lenders, not all)
  • Copies of tax returns, W-2s, bank statements and proof of income
  • Possibly a second home appraisal

Should You Go Jumbo?

There’s really no set answer here – it depends entirely on your individual circumstances, budget and needs. If you’re fully confident you can pay off the loan and it’s the only option available for the home you desire, there’s no reason not to move forward.

However, there may be cases where these circumstances are different. If you’re in the right local limit and the home is close to the range of a conventional mortgage, you might be able to negotiate with the seller to drop the price and allow a conventional loan. You could also look at paying a higher down payment to drop the principal loan amount, bringing it back under the conforming loan limit so you can get a more favorable conventional mortgage.

For more on jumbo loans and whether to go this route or take a conventional mortgage, or to learn about any of our mortgage rates or home loan services, speak to the staff at VIP Mortgage Inc. today.

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