Jumbo home loans: What you need to know

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Bursting at the seams of your current home? Looking to move to a better location or different school district? As your must-have list for a new home grows, so can the price tag.

While you shop for a home that will meet all your needs, it’s important to know that mortgage options differ based on the amount you’re looking to borrow.

Home prices in many cities continue to soar, causing more and more homebuyers to venture into jumbo mortgage territory. Oregon home prices have risen 7.5 percent in the past year, with a median home value of $318,800 in the state of Oregon, and Zillow predicts they’ll grow more than 4 percent in 2018. In competitive markets such as Portland, Eugene and Bend, prices can get even higher. Though Portland’s median home value is $407,500, prices exceed $500,000 in many neighborhoods, while homes in Bend have a similarly rising median list price of $465,000.

These rising prices mean a growing number of buyers may need to rely on jumbo mortgages to finance their new homes. But jumbo loans aren’t as intimidating as you might think. Here’s what you need to know about them.

 

Where does jumbo mortgage territory begin?

The main difference between a jumbo loan and a conforming loan is the amount you’re borrowing.

Standard mortgages are limited to an amount known as the conforming loan limit. While that amount can vary from county to county, in 93 percent of counties it’s $453,100, a 6.8 percent increase from 2017. Buyers who need to finance more than that will require a jumbo loan. Currently, more than 22 million U.S. homes are worth enough to require a jumbo mortgage, and jumbo loans account for about one in four approved mortgages.

OCCU Jumbo Home Loans are unique. Most lenders require a 20 to 30 percent down payment, which can make it difficult for homebuyers to qualify—but OCCU jumbo loans require as little as 5 percent down. On a $500,000 home, that means you’d pay $75,000 less on the initial down payment.

 

Who qualifies for a jumbo mortgage?

Since jumbo loans are larger and can be viewed as riskier, they typically have stricter underwriting criteria. Lenders may require:

  • FICO score above 700
  • Enough cash reserves to cover one year of mortgage payments
  • Lower debt-to-income ratio
  • Extensive documentation proving your financial health
  • A second appraisal of the new home

 

Do jumbo loans have higher rates or fees?

People often assume jumbo loans have higher interest rates than standard home loans. While that used to be true for many lenders, these days interest rates on jumbo loans are now more comparable to conventional rates. Many homebuyers may be able to purchase a pricier home without a much higher APR.

At OCCU, homebuyers with a high income and strong credit history may qualify for rates comparable to a traditional mortgage. We’re one of the few lenders to offer a reasonably priced fixed-rate option on our jumbo mortgages. Many lenders offer only adjustable rate jumbo loans, which means your mortgage rate rises whenever the national interest rate goes up. While OCCU can provide an adjustable rate mortgage if it fits your needs, you also have the option to lock in a fixed interest rate.

Closing costs do tend to be a bit higher, as well. For example, jumbo loans over $1 million may require extra steps, such as multiple appraisals, which can drive up closing costs. One comparison found that closing costs on a jumbo loan can run between $1,000 and $1,500 higher than on a conforming loan.

As home prices continue to escalate, many homes are becoming too expensive for a standard mortgage. Jumbo loans can help homebuyers compete in a challenging market.

 

For additional criteria and current rates for our jumbo loans, visit the OCCU Jumbo Home Loans page.