It's Getting Easier to Take Out a Jumbo Loan -- but Should You?

by Maurie Backman | Published on Sept. 7, 2021

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Lenders are loosening up on jumbo loans, but you still need to be careful when taking one out.

When you need to take out a larger mortgage, a conforming loan may not be enough. Instead, you may need to resort to a jumbo loan.

In most of the U.S., a mortgage falls into jumbo territory once the loan amount exceeds $548,250. But in some high-cost areas of the country, that threshold increases to $822,375.

Early on in the pandemic, it was harder to qualify for a jumbo loan. But lenders have since relaxed their borrowing standards a bit, and according to the Federal Reserve Board, during 2021's second quarter, it became easier to qualify for a jumbo mortgage.

If you're thinking of taking out a jumbo loan, there are certain drawbacks you should know about. Here are a few specific ones to keep in mind before you submit your application.

You might get stuck with a higher interest rate

You'll generally be charged a higher interest rate on a jumbo loan than with a conforming mortgage. The reason? Your lender is taking on more risk.

Right now, the average 30-year mortgage rate is 3.024%. For a 30-year jumbo loan, it's 3.066%. Now, because mortgage rates are low right now across the board, that 3.066% for a jumbo loan is actually a great rate to lock in. But as you can see, it's higher than what conforming loans are averaging for the same term.

You'll probably need a higher down payment

When you take out a conventional mortgage, you'll generally be asked to put down 10% of your home's purchase price at a minimum. Some lenders may let you get away with as little as 5% down. But it's advisable to put down 20% to avoid private mortgage insurance.

When it comes to jumbo loans, you'll often have to put down at least 20% of your home's purchase price at closing to get a jumbo loan. Some lenders may require you to put down even more. And since you'll be borrowing a larger sum, coming up with that down payment may prove to be a challenging thing to do.

If you're going to apply for a jumbo mortgage, do a few things first:

  • Shop around with different lenders to make sure you're getting a good rate
  • Make sure your credit score is in good shape (the higher it is, the more likely you'll be to qualify for a jumbo loan and snag a more competitive rate on it)
  • Crunch the numbers with a mortgage calculator to make sure you can really swing your monthly payments under that new loan

In some parts of the country, even the cheapest homes are expensive, and you may need to take out a jumbo mortgage to finance one. Just make sure you know what you're getting into before taking that leap. Mortgage lenders may be easing up on borrowing standards for jumbo loans, but just because you qualify for a jumbo loan doesn't mean it's the right choice for you.

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