If you're looking to purchase some pricey digs, but want avoid the pricey interest rates that come along with so-called jumbo mortgages, it’s time to take advantage of Congress’ current definition of jumbo: loans above $729,750. That number, temporarily increased as part of the federal government’s 2008 stimulus package, is set to revert to $625,500 in September.
September may seem like an eternity from now, but consider this: A typical home search can take 15 weeks, according to the National Association of Realtors.
Jumbo mortgages come with higher interest rates and bigger down payments. Bryan Smith of Quality Financial Solutions, Inc. in Commack provides a scenario illustrating the differences. For a hypothetical borrower with a $650,000 30-year fixed loan with a 20 percent down payment, “the interest rate would be 5.125 percent.” That translates into a monthly payment of $3,539.17.
Apply today’s jumbo rates to that same $650,000 mortgage and the interest rates on the loan would jump to 5.875 percent, raising the monthly bill to $3,845 – a $300 hike.
Along with that extra $300 every month, buyers encounter stricter lending guidelines for jumbo mortgages, which can significantly limit lending options. “It's a bigger loan, higher interest rates, a stricter debt-to-income ratio,” says Smith.
For those looking to act quickly and get in under the higher ceiling, Smith advises borrowers do a cost comparison to make certain that it makes sense to move quickly. "No borrower should rush into anything they are not comfortable with,” he says. And though the limit is set to expire this September, borrowers can get the mortgage they seek right up until the deadline. “As long as your loan is registered with lender prior to the change date, you will be entitled to the higher ceiling,” says Smith.
There are other ways to avoid falling into the jumbo market. Smith advises, “If you can put a greater amount toward a down payment, that could put you into a conforming loan amount,” thus avoiding the jumbo mortgage market.