Best Mortgage Lenders for Jumbo Loans
April 2024
There are very few people who can pay cash for a house. So most people who want to buy a home get a mortgage to help finance their purchase. Depending on where you live and the type of home you want to buy, you may have to borrow a large amount of money. If you're borrowing more than a certain amount, you may have to get a jumbo mortgage rather than a traditional one.
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You can use a jumbo loan to borrow a large amount of money when the purchase price of a home is too high for a regular (a.k.a. conforming) mortgage. Typically, the mortgage rate for a jumbo loan will be slightly higher than that for a conforming loan. You also might need to have a higher credit score to qualify.
Because a jumbo loan can be more expensive than a typical mortgage, it's important to make sure you find the right lender. These are some of the best lenders to work with if you're looking for the best jumbo mortgage rates.
What is a Jumbo Mortgage?
A jumbo mortgage is a mortgage that involves borrowing more than a set amount. Any mortgage loan for less than this maximum is called a conforming loan while a loan for more than that amount is a jumbo mortgage loan.
The conforming loan limits vary based on where you live. More expensive real estate markets have higher limits. For example, in 2021 the conforming loan limit for most single-family homes in the United States is $548,250. If you live in the Northeast or the West Coast, the limit can go as high as $822,375 or more. The limits are subject to change each year.
The conforming limit is set by the Federal Housing Administration (FHA) and affects the loans that can be purchased by Fannie Mae and Freddie Mac.
Both Fannie Mae and Freddie Mac are government-sponsored businesses that operate in the home loan market. They purchase conforming loans from lenders. Because they don't buy jumbo loans, it can make it harder for banks to sell jumbo loans. This makes the typical jumbo mortgage rate slightly higher than the interest rate of a conforming loan.
What Are the Differences Between Jumbo Mortgages and Conventional Loans?
Both conventional mortgages and jumbo mortgages help you accomplish the same goal: buying a home. However, there are important distinctions that you should keep in mind, primarily around the process of getting a jumbo loan.
First, to get a jumbo loan, you usually have to have a better credit score than you'd need to get a conventional loan. If you have a strong credit score, this won't be an issue, but people who are on the cusp of qualifying for a mortgage at all may struggle to get a jumbo mortgage. They'll have to settle for a conventional loan on a less expensive home.
Beyond the credit requirements, you usually need more assets to qualify for a jumbo loan. Most lenders will want to see borrowers who can make a down payment of 20%. Sometimes, you can get conforming loans with a down payment as low as 5%, so this can be a big difference.
Lenders also look at your income and liabilities when you apply for a mortgage. To get a jumbo mortgage, you'll have to prove that you have the income to pay the monthly bill. The lower your debt-to-income (DTI) ratio will be when you get the loan, the better your chances of qualifying. With a conforming loan, the DTI ratio requirements aren't as strict.
Jumbo mortgage rates also tend to be higher than the interest rates for a conventional loan. The difference in interest rate on a 30-year fixed-rate jumbo loan compared to a conventional loan can add a significant amount to your monthly payment.
Finally, lenders may want to get a second opinion when it comes time to appraise the home you plan to buy. Getting two appraisals adds time and expense to the process, which means you might have to pay higher closing costs to get a jumbo mortgage.
In general, the primary differences between a conventional loan and a jumbo loan are the cost and the lender's expectations. To get a jumbo loan, you have to be in a stable situation financially and be able to afford a more expensive loan.
Do Jumbo Loans Have Higher Rates?
In general, jumbo rates are higher than traditional mortgage rates. Lenders take on additional risk when they lend more money, so they compensate for that risk by charging a higher interest rate.
Many lenders are still able to offer jumbo mortgage rates that are competitive when compared to the interest rates for conforming loans. In some unusual situations, the annual percentage rate for a jumbo loan may be lower than for a conforming loan, but this typically is not the case.
Like all loans, the mortgage rate for your home loan will depend on the interest rate market when you get the loan, your credit score, and many other factors.
One thing that you can do to affect your jumbo mortgage rate is to pay points at closing. Mortgage points are pre-paid interest, which means paying more when you close on the home. In exchange, each point you buy usually reduces the interest rate of your mortgage by 0.25%.
One mortgage point usually costs 1% of the amount you borrow. If you borrow $650,000, then one point costs $6,500.
In general, the longer you plan to stay in the home, the more beneficial it is to pay for points. With the high mortgage rates for jumbo loans, reducing the interest rate of the loan can have a big impact on the monthly payment.
Another good way to reduce rates is to shop around for a good deal. Using a mortgage broker may help with this. Those with poor credit may also be able to get a better rate by adding a cosigner.
Can you Refinance a Jumbo Mortgage?
Yes, it is possible to refinance a jumbo loan, but just like applying for a jumbo mortgage, the process is a bit more complicated than refinancing a conventional loan.
When you go to refinance your jumbo loan, the lender will want to do all of the same due diligence you went through when buying your home. That means checking your credit, confirming you have the income to make payments, and appraising your home, possibly multiple times.
However, refinancing a jumbo mortgage can be a good idea. If you have a 30-year fixed-rate mortgage, loan rates may change during the life of your loan. Refinancing can help you secure a lower interest rate, which can save you a lot in the long run.
Refinancing can also let you cash out some of your equity, giving you money that you can use for other purposes, such as a home improvement project.
How Can I Find the Best Jumbo Mortgage Rates?
Finding the best jumbo mortgage rates can take effort, but it's just like finding a good deal on anything else. You need to put in the effort to shop around to find the best deal.
Start by making a list of lenders that you want to consider working with. You may be attracted by their advertised rates or other services that they offer.
Once you know which lenders you're considering, you can try to pre-qualify with each lender. It's best to submit pre-qualification applications in a short period of time. Most credit scoring models won't penalize you for rate shopping. If you wait too long between applications, it may have a negative impact on your credit score.
You can then compare the offers from each lender to find the best one for you.
Pros and Cons of Jumbo Mortgages
Jumbo mortgages have advantages and disadvantages that you have to consider before you apply for one.
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