4 Reasons To Consider a Jumbo Loan (& When Not To)

A jumbo loan allows you to borrow more than most loan types. For some buyers, it may be the only option for financing their dream property. We’ll review a few top reasons you might consider a jumbo loan. We’ll also discuss a few situations where finding an alternative to jumbo loans may be best.

Reason # 1 – Your Dream Home Exceeds Loan Limits

Does your dream home include more than five bedrooms? Does it overlook the ocean? Do you dream of a pool home with its own bathhouse? These features may lead to a price higher than what’s allowed with typical mortgages. Buying a luxury or dream home is one of the biggest advantages of using a jumbo loan.

The current conventional conforming loan limits are set at $766,550. If you want to buy a home over this limit, you may have to consider non-conventional loan types, like a jumbo loan. Most jumbo loans require repayment within 30 years, but if you prefer, shorter terms may be available. You can also get an adjustable or fixed rate with a jumbo loan, with the fixed rate being the better and more affordable choice.

Reason # 2 – You Don’t Want Multiple Mortgages

No one wants two mortgages. Previously, if you wanted to buy a home worth more than one lender was willing to offer, you had to secure multiple mortgages. Qualifying for a second mortgage on a single property can be extremely difficult since no lender wants to be the secondary loan provider. Homeowners are much more likely to give up the second property if the payments become too difficult to make.

A jumbo loan is an excellent alternative to two mortgages that allows borrowers to purchase a home over the conforming limit. Jumbo loans aren’t backed by the federal government, which can make them more difficult to qualify for. However, if you have excellent credit and minimal debt, it may be one of the few options available for purchasing your dream home.

Reason # 3 – You Want a Lower Down Payment

Sometimes, you may have to put less down on a higher-cost home using a jumbo loan than another loan type. If you tried to get more than one mortgage, you could end up paying multiple down payments to different lenders. A jumbo loan requires one single down payment, and that payment amount is dependent on your credit score and the loan amount. Some borrowers may qualify for as little as a 10% down payment.

Reason # 4 – You Have a Lot of Savings

If you have a significant amount of cash savings, you’re more likely to be approved for a jumbo loan. Of course, you could use that cash to purchase a home, but then your wealth is tied up in the property. Save this money for other important expenses, like a child’s college tuition or wedding, and take out a loan for your home.

When To Consider Jumbo Loan Alternatives

If you can’t afford the monthly payments or don’t have excellent credit, a jumbo loan may not be right for you. Keep in mind that jumbo loans are most commonly used for residential properties rather than investments. A jumbo loan on an investment property may be an option, but will typically have higher credit score and down payment requirements.

You may have other options available if you decide a jumbo loan isn’t right for you. Other options may include an 80-10-10 Piggyback Loan. Sometimes, negotiating the price of a property can bring it below the limit threshold. Putting a larger down payment on a property can also reduce the amount you have to borrow.

A jumbo loan may be the only option for homebuyers in extremely competitive markets. You could wait to buy until the market levels out, but this also isn’t always an option. Even though jumbo loans may have higher interest rates, they are eligible for refinancing. You could always purchase your dream home while it’s available and then refinance when interest rates drop, or the amount left on the loan is within conforming limits.

As with any loan, reviewing your lending terms before agreeing to a jumbo loan is always a good idea. Review how much your monthly payments will be, including how much goes toward interest each month. This can help you decide if it’s the right loan for you.

Jumbo loans are one of the most common methods of purchasing a more expensive home. As with any loan, though, it has pros and cons worth exploring. Make sure you thoroughly review your expenses and compare loan types.