Are you contemplating a home purchase for a large dollar amount and unsure of your options? One option that may be a good fit is a Phoenix Jumbo loan.
Whether it’s the increasing cost of homes or the various guidelines lenders must follow, this type of mortgage loan is becoming more popular.
Here is an overview of what Jumbo loans are and how they may differ from conventional mortgage loans.
What is a Phoenix Jumbo Loan?
When we hear this term, we think of large or plus size, which is the perfect definition of this type of mortgage. They are plus-size loans that are for larger dollar amounts.
The loan limit for Jumbo loans may vary by area. In most parts of the United States, the threshold is $453,000. What this means is that a mortgage loan should be more than $453,100 to be classified as a Jumbo.
In areas where homes are more expensive, the threshold is $636,150. The Federal Housing Finance Agency has set higher limits in areas like Guam, Hawaii, Alaska and the U.S. Virgin Islands. Honolulu, Hawaii has the highest conforming loan limit for this type of mortgage at $721,050.
How Are Jumbo Loans Different from Conforming Loans?
Traditional mortgage loans are often referred to as conforming because they conform to government guidelines regarding things like credit, debts and loan size.
Although Jumbo and conforming loans are both used to purchase homes, this is almost where the similarities end.
Below are the differences between the two.
- Conforming loans often originate with one lender but then are bought out by banks like Freddie Mac and Fannie Mae, which are government-backed lenders who underwrite and scrutinize mortgage loans on the open market. Jumbo loans, on the other hands, are not purchased by Freddie Mac or Fannie Mae.
- They must be over a certain dollar amount.
- Mortgage interest rates are typically lower for conforming mortgage loans. The main reason is because conforming loans are guaranteed by Freddie and Fannie whereas Jumbo loans are not, which makes them riskier.
- These loans are not offered at as many banks and lending institutions as conforming loans. This kind of brings in the supply and demand analogy. The fact that they’re offered at fewer banks is typically why they come with higher interest rates and stricter terms.
- Jumbo loans require higher down payments.
- They generally require higher credit scores. Whereas conforming loans may allow credits scores in the 600s, for this type of mortgage, they often like to see credit scores as 700 or higher.
- Higher closing costs are usually part of the deal because the dollar amount is higher, and there is often more paperwork involved.
- Some Jumbo loans require the borrower to have some cash reserves equal to several months of mortgage payments.
- They typically have stricter guidelines for applicants. One example is that some require two home appraisals rather than just one.
Benefits of Getting a Jumbo Loan
After reading about the differences between conforming and Jumbo loans, one might think lenders should steer clear of them. However, that is not the case at all. As will all types of mortgage loans, there are pros and cons.
Below are some benefits.
- More affordable in terms of interest rates.
- Attractive tax breaks regarding interest paid. Borrowers can claim interest payments on loans up to $1 million.
- No private mortgage insurance required.
- They make it possible for home buyers to purchase high-priced homes.
- Lower interest rates are possible with higher credit scores.
Are Veterans Eligible for Jumbo Loans?
The good news for veterans is that they are also eligible as long as they satisfy the eligibility requirements for mortgage loans and for Jumbo loans. The main difference between Jumbo VA loans and regular loans is that VA loans are guaranteed by the Department of Veterans Affairs.
However, although the VA’s loan guaranty program may not have a maximum dollar amount that at veteran can borrow, they do have a limit of how much they’ll guarantee.
Except for a few counties that have higher-priced homes, the maximum amount the VA will guarantee as of January 1, 2018 is $453,100.
So, does this mean that veterans can’t get a Jumbo loan for a home that’s $500,000? Absolutely not!
What it means is that the VA will only guarantee up to $453,100, and the veteran will have to pay 25 percent of the amount over $453,100.
For instance, a veteran has found his dream home for $600,000 and applies for a Jumbo loan. The VA will guarantee up to $453,100, so the veteran will have to pay a down payment of $36,725, which is 25 percent of the amount over $453,000.