Two Ways To Avoid Requiring A Jumbo Loan
Housing costs have risen so much in recent years that even the price of basic homes sometimes exceeds conventional loan limits. While jumbo loans are a valid option for buying expensive properties, because of their more stringent qualification requirements, these loans aren't a good choice for everyone. Here are two things you can do to get a high-dollar home covered by a conventional loan rather than a jumbo one.
Reduce the Financed Amount
Lenders are stricter about qualifying for jumbo loans because these mortgages exceed limits set by Fannie Mae and Freddie Mac (currently $726,200 in most areas), making them ineligible for purchase by these government organizations. Because of this, banks enact tougher qualifications to minimize the risk debtors will default on the loans.
If you are unable to get approved for a jumbo loan, one option for converting it to a conventional one is to reduce the amount that must be financed. For instance, the home you want to purchase costs $850,000. Putting up a 20 percent down payment ($170,000) leaves only $680,000 to be financed, well under the conventional loan limit.
Coming up with hundreds of thousands of dollars can be challenging, but it's not impossible. You could take advantage of the many downpayment assistance programs available or even contract with the seller to finance a portion of the purchase price. A mortgage broker or bank representative can help you brainstorm ways to pay down the home cost so that it fits within the conventional loan limit.
Split Mortgage Between Multiple Loans
Another option for avoiding taking out a jumbo loan is to split the home cost between two conventional loans. This is a more challenging way to go because you'll need to essentially take out a first and second mortgage on the property, and not many banks are willing to do that type of transaction when you're first purchasing the home and have no equity built up yet.
But, like most things in life, there are exceptions to the rule. If you search hard enough, you'll find two banks willing to help you buy the home you want. It's a good idea to connect to a mortgage broker or bank for help finding lenders that will work with you in this way.
Be aware, though, that the terms may not be as favorable as you'd want. For instance, you may be charged a higher interest rate. Be sure to go over the terms with your attorney, real estate agent, and lender to ensure you understand what you're getting into before signing any contracts.
For more info about mortgage loans, contact a local lender.