Any mortgage that exceeds the Federal Housing Finance Agency (FHFA) conforming loan limits is referred to as a jumbo loan. Jumbo loans are also known as non-conforming loans because they surpass the conforming loan limits.

For the best jumbo mortgage rates, a credit score of 720 and a Loan-to-Value (LTV) ratio of 80 percent are ideal starting points. A larger down payment or an 80-10-10 loan will keep you below the jumbo threshold if jumbo rates are high.

The federally backed mortgage companies Fannie Mae and Freddie Mac won’t service or guarantee these loans. Since lenders can’t sell jumbo loans to Fannie or Freddie, they’re viewed as more risky mortgages and usually have higher interest rates.

Jumbo loans are called after the huge loan balances that are available. In most parts of the United States, conforming loans for 2021 are capped at $548,250, with additional borrower qualification requirements. To account for local housing markets, loan limits in certain high-cost areas are much higher. In Los Angeles County, for example, the cap for 2021 is $822,375.

Borrowers with good credit scores and low loan-to-value ratios (the difference between the home’s value and the amount you’ll borrow) get the best jumbo rates. Some lenders can need a FICO score of 720 or less and a Loan-to-Value (LTV) ratio of no more than 80%, which is usually accomplished by making a 20% down payment. Here are some tricks for getting the best jumbo loan mortgage rates — and when alternatives to jumbo loans might make sense.

First, find out if you need a jumbo loan.

Is a jumbo loan necessary in your situation? It is dependent on where you currently reside or want to reside. Just because you may be eligible for one of these loans doesn’t mean you should apply for one. You shouldn’t do that if you’re relying on it to provide you with a significant tax break, for example.

You’re probably aware that if you itemize your deductions, you will subtract the mortgage interest you paid in any given year from your taxes. However, you probably never had to think about the IRS’s deduction limit, which was recently decreased with the Tax Cuts and Jobs Act passage.

Make sure you have a qualifying credit score and Loan-to-Value (LTV) Ratio.

Your credit score and loan-to-value ratio have a major impact on the jumbo mortgage rate you get. Although a higher credit score and a higher LTV put you in a better position to negotiate lower rates, the minimum credit score of 720 and the 80 percent LTV are guidelines to help you qualify for the best jumbo mortgage rates.

>>More: Jumbo Loans: How to qualify for a Jumbo Home Loan?

Compare lenders for the best jumbo mortgage rates.

The big question is whether a jumbo loan is the best choice for you or whether you should look at other options. You’ll need to compare jumbo and conforming mortgage rates to make your decision. You might expect jumbo loan rates to be higher than conforming loan rates, and you’d be right, but this isn’t always the case.

Get deals from at least three lenders and compare annual percentage rates, or APRs, which reflect the loan’s overall cost, to find the best jumbo mortgage rates.

You will proceed with a jumbo loan if jumbo rates are lower than conforming rates. There are alternatives if jumbo prices are too high.

Consider jumbo loan alternatives.

If jumbo rates are higher than conforming loan rates, avoiding a jumbo loan could be the best option. How can you go about this if the house price stays the same? Here are a few alternatives. Whether or not they’re worthwhile depends on how much money you’d save.

Increase your down payment

Increase your down payment if you can to get the total sum you need to borrow under the conforming loan cap in your area. A larger down payment reduces your loan-to-value ratio, and a lower LTV will help you save even more money on interest. Of course, raising the money for a larger down payment on short notice is difficult. Down payment conditions have loosened. Previously, jumbo mortgage lenders often allowed home buyers to put down 30% of the home’s purchase price (compared to 20 per cent for conventional mortgages). That percentage has now fallen to as low as 10% to 15%. As with any mortgage, having a larger down payment can have a number of benefits, including avoiding the expense of the private mortgage insurance that lenders need for down payments of less than 20%.

Use an 80-10-10 loan.

Borrowers who don’t have big down payments and want to avoid paying private mortgage insurance, which is normally allowed when the loan-to-value reaches 80%, can use an 80-10-10 loan (also known as a “combination” or “piggyback” loan).

The following is how it works: You borrow up to 80% of the purchase price with a primary conforming mortgage up to the local cap, then find 10% of the remaining purchase price with a higher-rate second mortgage — such as a fixed-rate home equity loan or variable-rate line of credit — and pay the remaining 10% with the down payment.

The key is to keep the sum of your primary mortgage below the jumbo threshold in your area. A lender may help you decide the right mix of second mortgage and down payment to fund the outstanding balance. Before you agree to a hybrid loan, make sure the rates on both loans, as well as any fees you’ll incur, are still lower than a jumbo mortgage.

Summary:

HOW YOU CAN GET THE BEST JUMBO MORTGAGE RATES

  1. Polish your borrower credentials: You will require at least an 80% LTV and a 720 credit score. To qualify for a jumbo loan, you must have excellent credit. For most buyers, a FICO score of 700 or higher is needed, but other factors will necessitate a slightly lower score. When applying for loans, a low debt-to-income ratio is often advantageous. Lenders may set a target of 43 per cent, but that amount isn’t set in stone.
  2. Compare Annual Percentage Rate (APR): It is important to ask the APR from at least three jumbo mortgage lenders. The annual percentage rate is the interest rate charged to creditors and paid to investors on a yearly basis. The annual percentage rate (APR) is a percentage that reflects the real annual cost of funds for a loan over the duration of the loan. This covers any charges or extra costs incurred during the transaction, but it excludes compounding. The APR provides borrowers with a single number that they can conveniently compare to other lenders’ prices.
  3. If conforming mortgage rates are lower than the rates for a jumbo loan, try using a more significant down payment or an 80-10-10 loan to keep the amount you borrow below the conforming loan limit.
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