If you’re a homeowner looking to purchase a new home, or refinance your current one, then you may have heard of a jumbo mortgage. A jumbo mortgage is a loan that exceeds the conventional loan limits set by Fannie Mae and Freddie Mac, the two government-sponsored enterprises (GSE) that buy mortgages from lenders and package them into securities. Jumbo mortgages typically have higher interest rates than conventional loans, but they also offer a number of distinct advantages for those who qualify for them. One such advantage is the potential savings you can realize by taking out a non-conforming jumbo mortgage.
A non-conforming jumbo mortgage is one that doesn’t meet the standards set by Fannie Mae and Freddie Mac for conforming loans, which are those with loan amounts up to $484,350 for most areas of the country (higher amounts in some high-cost areas). Non-conforming loans often require higher down payments and may come with higher interest rates, but they can also offer more flexibility and larger loan amounts than conforming loans. This can be especially beneficial if you’re looking to purchase an expensive home or refinance an existing one with a high loan amount.
The potential savings from taking out a non-conforming jumbo mortgage can be significant. For example, if you were to take out a $700,000 loan on a home in an area where the conforming limit was $484,350 and you qualified for both conforming and non-conforming loans at the same rate of 4%, you could save around $20,000 over the life of the loan by opting for the non-conforming option. That’s because with the conforming option your monthly payments would add up to around $3,400 per month over 30 years ($700k x .04 / 12 = $3,400), while with the non-conforming option it would only add up to around $3200 per month ($700k x .037 / 12 = $3200). That’s an extra $200 per month in your pocket!
So how do you qualify for a non-conforming jumbo mortgage? Generally speaking, lenders will look at your credit score/history as well as your income/debt ratio when determining your eligibility. Credit scores typically need to be at least 700 or higher in order to qualify for most non-conforming jumbo mortgages (though some lenders may require even higher scores). Your income/debt ratio should also be good; typically lenders like to see ratios no higher than 45%. So if your monthly debt payments (including housing) add up to no more than 45% of your gross income each month then you should in good shape when it comes time to apply for one of these mortgages.
It’s important to note that even if you qualify for a non-conforming jumbo mortgage it doesn’t mean it’s always the best option; there are other factors such as closing costs and fees that should be taken into consideration before making any final decisions. But if all things are equal then taking out this type of loan could definitely result in some major savings over time. And even if it doesn’t make sense financially right now that doesn’t mean it won’t ever make sense; conditions can change so it’s always worth keeping an eye on things so that when circumstances do become favorable you’ll be ready!