Whether you're moving from a low or medium cost of living area to a much pricier region or are finally jumping into your local real estate market after years of paying high rent, you may feel overwhelmed at the thought of paying half a million dollars or more for a residence. In fact, a number of U.S. cities boast an average sales price of more than $1 million for a fairly modest four-bedroom home. Fortunately, some of your financing options for these pricey homes can provide you with a competitive interest rate when compared to those available for a lower cost home. Read on to learn more about jumbo loans and what you'll need to do to qualify for the best possible financing on your new home.
What are jumbo loans?
The U.S. mortgage market includes two key government players -- Fannie Mae and Freddie Mac. Both these entities buy, sell, and service mortgages, and because these mortgages are government-backed, they offer some protections not available to homeowners with mortgages owned or serviced by other companies. Fannie Mae and Freddie Mac have a huge presence in the U.S. mortgage industry, and many loans originated with other lenders are eventually sold to one of these two entities for servicing purposes.
However, there are limits on the dollar amount of loans that Fannie Mae and Freddie Mac will buy. If your mortgage exceeds $417,000 (or $625,000 in high cost of living areas), it will be deemed a "jumbo loan" and ineligible for sale to either of these entities. As a result, you may pay a slightly higher interest rate for a jumbo loan than you'd pay for a conventional loan. Jumbo loans may also have more restrictive terms than Fannie Mae and Freddie Mac-compliant mortgages.
How can you get the best rate on your new mortgage?
If the home you're considering for purchase is priced just above the jumbo loan threshold, you may want to consider saving up a slightly higher down payment to put yourself back in the conventional mortgage market. When dealing with homes priced right around this threshold, getting a conventional loan rather than a jumbo loan can save you tens of thousands of dollars in interest over the years.
However, if you're looking for a home in the higher price range, you can get the best rate on your jumbo mortgage by shopping around. Today's housing market is a competitive one, and lenders seeking to bring in business will often lower rates. Getting a range of quotes from lenders in your area will let you know that the lender you choose is giving you the fairest possible price.
For more information, contact Premium Mortgage Corp or a similar company.Share