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258 Main Street Unit F, Medfield, MA 02052
508-944-1967 | [email protected]
A jumbo mortgage refers to a high-priced loan, usually meant for a luxury property. And while this loan may have once been reserved for the millionaire investors of the world, it may not be as exclusive as you think. If you're interested in what it takes to apply, it helps to understand how they work and who the best candidates are.
To be considered for a jumbo loan, it must be above a certain minimum. However, this amount will differ based on where you purchase your home. The minimum for a jumbo loan in Beverly Hills will be much higher than the minimum in Kansas City due to the discrepancies between median home prices. These values will rise and fall depending on the local economy and average property appraisals, so buyers will need to do a little research into their city's criteria.
Jumbo mortgages are available in a variety of options, similar to a conventional loan. Unsurprisingly, lenders tend to be a little pickier when it comes to who they approve and who they reject. A single application may go through several underwriters to arrive at the final answer. They're looking for exceptionally high credit scores and equally low debt-to-income ratios.
It's the lender who dictates the exact terms of the loan, though historically, jumbo loans have had higher interest rates. However, it should be noted that this is not a hard-and-fast rule. Interest rates have been known to come down based on the caliber of people who apply. The more qualified applicants, the less overall risk the lender assumes.
In addition, the jumbo mortgage minimum down payment has been relaxed to just 5% to allow a more level playing field (especially for people in high-priced markets). Despite this though, most lenders are still looking for at least 15% on a jumbo loan. Shopping around can make it easier to find a lender with reasonable terms for a jumbo loan.
Adjustable-rate jumbo loans are available, but they are not the ideal choice for homeowners unless they know they'll be selling in the very near future. To avoid paying more interest than necessary, experts recommend a fixed-rate over 15 years.
There may be a lot of fine print to a jumbo loan, but lenders are largely ensuring that the homeowner has enough in stable assets (e.g., property, savings, etc.) to cover their mortgage even if they fall on hard times. Knowing the terms can make it easier to prepare, apply, and be approved for the home of your dreams.
PMI, or private mortgage insurance, is a necessity most times. If your down payment is less than 20% of the purchase price of the home, then you’ll need to pay for this additional insurance in order to secure a loan for the home. This policy protects the lender if the borrower cannot pay the loan installments. This way, the lender knows they will not lose money in the event of default.
Private mortgage insurance is also required if you refinance your home when it has accrued to less than 20% equity.
Here are a few other key points to remember about PMI.
The fees involved with private mortgage insurance can range based on a few factors, including the actual size of the down payment and your credit score. You can expect the cost of the insurance to be somewhere between 0.3% and 1.5% of the loan amount per year. Homebuyers can pay PMI premiums either monthly or as a large payment up front, though some policies may require the borrower to pay installments versus a lump sum.
The lender will automatically cancel your PMI once the loan drops to 78% of the home’s value. For this reason, you’ll want to keep track of your payments to see how close you are to paying off your loan. When you’ve paid your loan down to 80% of the home’s original value, you may ask your lender to discontinue the insurance premium payments.
This ratio is the amount of mortgage debt as a percentage based on how much the home is worth. It’s calculated by the following formula:
Amount owed on the mortgage/Appraised value
If a home is worth $100,000 and the buyer owes $80,000 on the home, the loan-to-value ratio is 80%. This means the borrower can request the lender cancel the insurance.
If you secure an FHA loan, they require the payment of PMI premiums for the entire life of the loan. You can’t cancel these insurance payments, but you can refinance the loan in order to get rid of the insurance. This means that you will no longer have an FHA loan.
Private mortgage insurance can be confusing, but, as a first-time homebuyer with little capital, the fees may be worth it when you’re able to secure your first home.
You’ve finally found the perfect home. It’s got the number of bedrooms you wanted, a spacious kitchen, updated bathrooms, and even a beautiful vegetable garden out back. Now comes the tricky part—how to pay for it.
Numerous home buyers find financing their mortgages through a credit union to be a good option. According to Magnify Money, approximately nine percent of mortgages are held by credit unions. These non-profit organizations essentially operate like banks, but are more laid back, less aggressive, and easy to work with. Here are some of the top benefits you’ll find when financing your mortgage through a credit union.
As a part of their philosophy, credit unions put a higher priority on customer service than they do profits. They don’t have to answer to external stockholders and put priority on profits the way traditional for-profit banks do. As a result, credit unions are equipped to offer easier loan approvals and decent mortgage rates. Even if you have a lower credit score or have saved a smaller down payment than traditionally required, you can usually find a credit union willing to work with you.
Credit unions are known to offer fewer origination fees and lower processing costs because they don’t have the same requirements banks do. For instance, credit unions don’t have to pay federal taxes and need to break every year due to their non-profit status. These savings are usually passed onto their members.
Many mortgage seekers find they enjoy working with an entity that strives to treat them as a person, not as a distant account number. Since many credit unions are smaller entities than their for-profit banking counterparts, they typically offer a “small-town” feel, even if they are a large credit union. This is because their memberships are limited to specific affiliations.
Also, a consideration you might find of value is the fact credit unions don’t typically sell out to other entities. Chances are you’ll have one lender to deal with through the lifetime of your mortgage (although not a 100% guarantee). If you borrow from a bank, chances increase for your loan to change hands many times over the years.
There are many benefits to knowing who services your loan. If a problem or other issue arises, you’ll almost always know who you can turn to and where to send your payment.
Ideally, you’ll want to be preapproved before starting your home search so you know how much you qualify for and don’t waste time looking at homes out of your price range—this is no matter what lender you ultimately decide to take out a mortgage with. But if you’re looking for low maintenance and high- quality lenders, a credit union might suit your needs.
If you’re not sure you can join one, be sure to consider all of your personal and professional affiliations, be they your college alumni, employer, HOA or church, to name a few. You can find out which ones you are eligible to join by checking your affiliations at CUlookup.com.
If you’re in the market for a new home, chances are you’ve been evaluating your finances. As a first-time homebuyer, there are programs in place to help with the down payment. According to the December 2019 Realtor Index Confidence Survey, first-time homebuyers accounted for 31% of all sales, and 77% put down less than 20%.
Once you’ve worked with a mortgage lender to get a competitive rate, these programs may help with getting into your dream home:
Are you a veteran or active duty? If so, you won’t need to look far. This program helps individuals get a home with no down payment. It’s backed by the government and has a series of requirements to meet. There are also Adapted Housing Grants, which help purchase a home adapted for a service-related disability, or if upgrades need to be done to the home to make if accessible.
If you’re looking in a rural area, this loan by the Department of Agriculture may be the one for you. There is no down payment to participate, but there are income requirements. When hearing the word rural, you may think it’s totally country but there are tons of “rural” areas that are well populated.
This program from the Department of Housing and Urban Development (HUD) lists eligible properties by state and is not limited to first-time homebuyers. The property must be in an area marked for revitalization and is only open to certain professions like law enforcement officers, firefighters, emergency medical technicians and teachers. If approved, you must live in the property for at least 36 months and receive up to 50% off the list price of the home.
Local First-Time Homebuyers GrantsMany municipalities offer funds from their own first-time homebuyer programs. There are certain requirements to meet, such as requiring the owner live in the home for a short period of time. In many cases, the grant is forgivable over a period of time. There are also block grants through Congressional districts, which are distributed through local programs.
A mortgage broker will be able to recommend additional programs you may qualify for based on the area you are attempting to purchase in. Homeownership doesn’t have to be complicated – it may just take a little work to get what you want and the assistance you need. Call a realtor and mortgage broker to get started on the process today.
Filling out a mortgage application may prove to be a long, arduous process, particularly for those who are buying a house for the first time. Lucky for you, we're here to help you dot the I's and cross the T's on your mortgage application to ensure you can quickly and effortlessly acquire your dream house.
Now, let's take a look at three tips to help you prepare your mortgage application.
1. Be Diligent
A mortgage application may appear daunting at first. The application may include several pages of questions, and you may have only a limited amount of time to finalize your submission.
When it comes to completing a mortgage application, it generally pays to be diligent. If you answer each mortgage application question to the best of your ability, you likely will have no trouble moving forward with your home purchase.
2. Avoid Guessing
If you're uncertain about how to respond to certain mortgage application questions, there is no need to guess. Instead, search for the information that you need to provide a comprehensive response. This will help reduce the risk of encountering potential problems down the line that otherwise could slow down your home acquisition.
Remember, guessing on a mortgage application probably won't do you or your lender any favors. But if you allocate the necessary time and resources to understand mortgage application questions and provide thoughtful responses, you can minimize the risk of application errors.
3. Ask Questions
Completing a mortgage application sometimes can be tricky. Fortunately, a lender employs mortgage specialists who are happy to respond to your application concerns or questions at any time.
If you're unsure about information that is requested on a mortgage application, don't hesitate to reach out to a lender's mortgage specialists for help. These specialists possess extensive mortgage expertise and can help you complete a mortgage application.
Furthermore, mortgage specialists can offer insights into a wide array of mortgage options. These specialists can explain the differences between fixed- and adjustable-rate mortgages and enable you to select the right mortgage option based on your financial situation.
As you prepare to buy a house, you may want to consult with a real estate agent as well. In fact, with a real estate agent at your side, you can seamlessly navigate the homebuying process.
A real estate agent understands exactly what it takes to acquire a house, regardless of the finances at your disposal. This housing market professional can set up home showings, help you submit offers on houses and ensure you can purchase a residence that matches or exceeds your expectations. And if you need help getting a mortgage, a real estate agent may even be able to connect you with the top lenders in your city or town.
Ready to move forward in the homebuying journey? Use the aforementioned tips, and you can finalize a mortgage application and secure the financing that you need to acquire your ideal residence.
