I am not suggesting that mortgages are a commodity like fries and a milkshake. I am not even suggesting that you should eat French fries for lunch. In fact, should you decide to skip out on your normal grilled chicken and spinach salad and splurge on French fries for lunch you probably don’t think that all fries are the same. I know I don’t think they are all the same. I prefer skinny French fries that are very crispy, but not burnt. And there is a hole in the wall in Auburn, AL that makes the best vanilla milk shakes on the planet. Enough about that before I have to run an extra three miles today.
Mortgages are exactly like those fries and shakes; there is one that is just right for you.
What is a jumbo loan anyway?
A jumbo loan is any loan that is above the limits set for conventional, conforming loan amounts. In most areas of the county, that is any loan amount over $417,000 for a single family residence. If you are buying a home that is two, three or four units then jumbo loan amounts don’t kick in until your loan amount exceeds $533,850, $645,300 and $801,950 respectively. If you are buying a home in a market where homes are particularly expensive, then jumbo loans start at different amounts. For example, in San Diego the limit is $580,750 and in New York it is $625,500. The line between conforming and jumbo loans is broken down by market
Is a jumbo loan right for me?
You’re going to need a jumbo loan if need to borrow more than the conforming loan limit, but that’s a different question than if a jumbo loan is right for you. If you’re buying a home and your loan amount is close to the line, you can always choose to put more money down so that you don’t have to get a jumbo loan. Many people think that is “the right” thing to do. They think that jumbo loans have higher interest rates, require ginormous down payments, taker longer to close, require better credit scores, and have fewer loan options.
First, each situation is different. The “right” thing to do is the thing that best meets your financial needs. Talking to an experienced mortgage professional who can guide you through the sticky maze of lending options, investing strategies, and tax strategies is the best place to start. Many times what you borrow impacts not only your budget, but also your tax bill and your investment portfolio. Taking a few minutes to discuss investing and tax strategies along with your financing strategy is worth it.Even though mortgages come in Jumbo you don't want to hear 'would you like fries with that?' Click To Tweet
Second, jumbo loans have a lot of options. Let’s dispel a few myths.
- Jumbo loans have higher interest rates – not necessarily so. This is dependent on how much you borrow, the type of loan you get and your credit profile. You may find that the rate on a jumbo loan is lower than the rate on a conforming loan.
- Jumbo loans require ginormous down payments – while it is true that conforming loans require smaller down payments, you don’t need a ginormous down payment on most jumbo loans. Your credit profile, debt to income ratio and reserves will have an impact on the loan programs available to you.
- Jumbo loans take longer to close – This is mostly dependent on you! If you come prepared with your documents and return your items requested to your lender quickly there is no reason that your loan closing should drag out.
- Jumbo loans require better credit scores – This one is based in truth. If you compare jumbo loans to just other private investors credit score requirements are similar. However, if you compare it to all options, including those offered by the government, then there are fewer options. The government has made some options available to people that had extenuating circumstances. There are not many private lenders that are willing to extend credit under similar conditions.
- Jumbo loans offer fewer options – I would ask you, fewer than what? And how many options do you need? At last count we offered over 100 different options. If you can’t find what you’re looking for it probably does not exist.
Jumbo loans are just for rich people, right?
I guess that depends on how you define rich. It also depends on just how much of your budget you wish to spend on housing. There are people who spend more of their monthly budget on a home in order to buy a particular home or allocate more of their budget to their mortgage to live in a certain neighborhood in order to be in a certain school district. Depending on your other debts, you can make as little as $220,000 a year and qualify to buy a $1 million dollar home. It’s truly about choices.
Interested in understanding what it takes to afford the average mortgage in your state? All the work has been done for you. In Georgia you have to work between 40-49 hours to pay your mortgage. But, if you move just a few hours south to sunny Florida, you would need to work approximately 10 hours per month more.
There aren’t any million dollar homes in my neighborhood. Why do jumbo loans exist?
If a quick drive through your neighborhood doesn’t turn up any mansions like the ones you see on television and you haven’t been house hunting in a few years, you might wonder why jumbo loans even exist. I mean, just how many lavish homes do movie stars need to finance? Can’t they just pay cash?
It might surprise you that in many cities across the country it is a struggle to find affordable housing. Markets across the country are seeing a staggering rise in the number of $1 million homes. While it might be cool to look at these homes on HGTV and Instagram, having this price point as the standard in your city changes the home buying landscape.
How much money do you have to make in order to buy a million dollar home?
We noted earlier that you need to make at least $220,000 a year in order to buy a $1 million home that is just the beginning. You have to look at your overall budget. What are your other debts? What are your upcoming expenditures? What will maintenance be on the property? How will your income change over the next few years? How will your expenses change?Are you a HENRY and wanting to buy a house, but money is holding you back? Click To Tweet
The other thing that will impact your home purchase is your down payment. You may not need a ginormous down payment, but you do need a down payment. There is a term I recently heard …. HENRY. High Earner Not Rich Yet. I don’t know the official definition, but it sounds to me like someone who has a good job and makes a good living, but is stretched thin month to month and isn’t saving a lot yet or hasn’t had their job for a long time yet and hasn’t accumulated a lot of savings at this point in their life. Are you a HENRY? If so, are you wanting to buy a home, but don’t have your down payment yet?
Here are a few ideas to save for your down payment:
- Raise the deductible on your car insurance so you can lower your premiums
- Do you need 300 cable channels or can you live with a Netflix subscription for the next couple of months?
- Plan to party at home – drinks out with friends costs a lot of money. You can have just as much fun over a bottle of wine at home and save a pretty penny
- Ask your family to give you cash for Christmas and Birthday gifts instead of presents, but make sure that money goes straight into a savings account and not into your pocket!
- Get on a budget. Knowing where your money goes and spending it wisely is very important when you are trying to save. Remember that you have a goal. Don’t sacrifice what you want most for what you want in the moment.
If after reading all this you’re still hungry for fries and a shake, I think you’ve earned it. Better yet, save your money. Walk around your neighborhood and let all of this digest. Don’t forget you can always call, email or comment with any questions.
If you liked this, all I need you to do is share it with your friends. There is a lot of misinformation out there. Spread the word on the good stuff. Thanks!