A jumbo loan is a mortgage for a loan amount that exceeds the conforming loan limits set by the government. Jumbo loans typically have higher interest rates than conforming loans. However, jumbo loans do not have prepayment penalties and will not have high closing costs. This is an excellent advantage for jumbo buyers as well as first-time homebuyers.
Unlike conforming loans, adding a jumbo loan to your mortgage portfolio may increase the number of options you have in terms of loan terms and fees. Let’s take a look at some of the benefits of getting a jumbo loan:
5 Benefits of Getting a Jumbo Loan in Michigan
- Minimum Reserves. With a jumbo loan, you can structure your loan so that you don’t have to have as much in reserve for interest payments. Â Instead of being required to have 20 percent of your loan amount set aside to pay for taxes and insurance, you may be able to structure your loan so that you only have to have 10 percent or even 5 percent in reserve. Since the government sets higher conforming loan limits for homes that cost more, this means you’ll have more in reserve for additional types of cash flow, such as money for home maintenance or home improvements.
- More Money Available. When you have a jumbo loan, you can have a higher loan-to-value (LTV) ratio. The loan-to-value ratio is the loan amount divided by the property value. If the LTV is 85 percent, then the home is 85 percent financed by the lender and 15 percent is owned by the borrower. When you have a non-jumbo loan, the LTV ratio is limited to 90 percent. However, when you have a jumbo loan, this limit is increased to 100 percent. Since the property value is higher, you can buy a more expensive home for a lower down payment.
- VA Jumbo Loans Available. If you’re a veteran, you may be able to get a jumbo loan through the VA home loan program. You don’t have to have a 20 percent down payment with VA loans. And, you can use the Veterans Administration loan guarantee benefit to cancel the monthly mortgage insurance when you have at least 20 percent equity in your home. VA Jumbo loans are a terrific option for military personnel who want something a little more upscale than a typical home loan can provide.
- Buy More Luxury Homes. Having a jumbo loan means that you will have a larger property pool to buy from. Since jumbo loans are needed for homes that are higher in value, this means you can buy a more upscale home. Luxurious homes are typically in high demand so that the demand will be higher, too. And, if you have a jumbo loan and are looking for homes for sale, you will have more options.
- No Prepayment Penalties. With a jumbo loan, there aren’t any prepayment penalties. This is great for people who buy homes with jumbos, especially people who are planning on moving in the next five years or so. This is also great if you have a large outstanding balance on your mortgage. You can refinance your loan to a lower interest rate if you’re planning on paying it off in a few years.
Who Needs a Jumbo Loan
The best candidates for jumbo mortgages are first-time homebuyers and people who want to refinance their homes. Many first-time homebuyers are looking to get the biggest bang for their buck, and that means buying a home that’s within the conforming loan limit. Since jumbo loans have higher interest rates, this is a great option for first-time homebuyers.
If you’re looking to refinance your home, a jumbo loan is a great option for you, too. If you want to lower your interest rate and increase your monthly cash flow, then you will want to refinance to a lower rate and a balloon loan. If you’re looking to stay in your home for more than a few years, then a jumbo loan probably isn’t the best option for you.
Your Experts at Mortgage City!
Jumbo loans give you a larger pool of homes to choose from. Additionally, if you’re a first-time homebuyer, you may be able to purchase a more upscale property with a jumbo loan. If you’re a veteran, you can get a jumbo loan through the VA loan program. And a jumbo loan will not have prepayment penalties, which is great for people who want to pay off their debt quickly.
Mortgage City is a licensed mortgage originator that offers jumbo loans in Michigan, Florida, New Hampshire, Texas, California, Massachusetts, Colorado, Indiana, and Ohio.. Let us help you find the best option for your specific needs. Call us today at (248) 930-8709 to get started!
