Loan Options – What’s a Jumbo Loan, and Do I Need One?
Home prices in Reno-Sparks hit a median home price of $400,000 for the first time ever, and prices will likely continue to surge. That means more people may be considering financing options beyond conventional loans. Here’s what the Cushing Team in Reno wants you know about jumbo loans and how to determine if you need one.
The Jumbo Loan
In most aspects, a jumbo loan is just like a traditional mortgage, with two main differences. First, a jumbo loan allows buyers to borrow more money than they could with a traditional loan. That makes them a good option if you’re looking at homes in higher price ranges.
Jumbo loans are also non-conforming, meaning they aren’t managed by Fannie Mae or Freddie Mac and so come with different tax implications and underwriting standards. That also means the Federal Housing Finance Agency (FHFA) sets the conforming limits of a jumbo loan. As of 2019, FHFA’s maximum conventional loan limit in Washoe County is $484,350. If you’re looking at properties that exceed this amount, a jumbo loan could provide the additional financing you need.
Qualifying for a jumbo loan can be quite stringent, and they vary from one lender to the next. In general, a good candidate can show the following:
- Sufficient income
- Acceptable debt-to-income ratio
- Strong credit history
- Cash reserves to cover between six and twelve mortgage payments
It’s also not uncommon for jumbo loan borrowers to be asked for extra documentation, and that’s especially true for people who are self-employed.
Rates & Down Payment
When it comes to things like interest rates and down payment, jumbo loans offer similar options as conventional financing. Jumbo loan borrowers can qualify for fixed or adjustable-rate mortgages with varying terms. Interest rates will fluctuate based on the creditworthiness of the individual borrower and current market conditions.
Many lenders will require a down payment between 10 and 20 percent of the home’s value – and the latter has its own advantage. Putting down at least 20 percent means you will likely be able to avoid private mortgage insurance, or PMI. With a jumbo loan, PMI can mean dramatically increased mortgage payments, so avoiding that will help keep your debt-to-income ratio down.
A jumbo loan may mean more money, but that doesn’t necessarily to bigger write-offs come tax time. The IRS can set limits on interest-related tax deductions, so it’s a good idea to speak with your accountant in addition to your mortgage lender.
There can be many benefits to a jumbo loan for the right candidate. If you have specific questions, the Cushing Team is here to answer them. Contact us today for more information about jumbo loans, and let us help you decide whether it’s the right option for you and your family.