Jumbo loans may seem intimidating to those who haven’t been introduced to the concept. After all, jumbo and super jumbo loans sound massive. In truth, however, jumbo and super jumbo loans are beginning to become the norm in the home loan market.
Well, in short, the median home price is on the rise throughout most of the country (In fact, according to city-data.com, there are hundreds of cities in the United States which have a median home value that is currently higher than one million dollars!). And since home prices are rising, homebuyers are taking out larger home loans. Unfortunately, there are some myths and misconceptions surrounding these larger, albeit common loans. Let’s take a look at common jumbo loan myths and the truth behind these mortgages.
The Interest Rates Are Higher
Not true. Most folks assume that jumbo and super jumbo loans come with higher interest rates than traditional conforming loans. While that assumption was true a few years back, nowadays jumbo loans often have interest rates that are nearly the same or even lower than conforming loans.
The Down Payment Is Jumbo Also
While in the past, mortgage lenders required that borrowers put forth 30 percent of a home loan with their down payment, borrowers today have much more financial freedom. Nowadays, some jumbo loans can be attained with as little as 10 percent down.
You’ll Pay for Mortgage Insurance
In recent times, borrowers were often required to pay mortgage insurance alongside their regular home loan payments. Mortgage insurance provides extra protection for mortgage lenders who fear that a borrower may default on the loan in its lifetime. While jumbo and super jumbo loans used to be perceived as a risk, the market is healthy at the moment, and lenders are easing up on their requirements to cater to the growing loan economy.
Very Few People Qualify
As we just mentioned, the home loan market is healthy, as well as the home market itself. And since lenders have more confidence in buyers, mortgage lenders are lifting some of the restrictions that they had in place. Lenders still take a keen look at borrowers’ credit scores, borrowers’ debt-to-income ratios, and the loan-to-value ratio on a home purchase. However, lenders are less stringent about to whom they lend money. As the housing market rises, mortgage lenders become more confident in the market and they compete to earn homebuyers’ business.
There’s No Diversity
Homebuyers often assume that there are very few options when you opt for a jumbo loan. That’s not the case. There are several loan types available to consumers. If you’re looking for low upfront costs on your loan, take a look at an interest-only jumbo mortgage. Looking for a stable rate for the lifetime of your loan? Then opt for a 30, 20, or 15-year fixed rate jumbo mortgage. There are fixed-term jumbo adjustable rate mortgages (ARMs) too. You can even find jumbo home equity lines of credit (HELOCs) from mortgage lenders.