Choosing Between a Jumbo Loan and a Conventional Loan
Prospective homeowners come to mortgage lenders with all types of questions. Some of the most common queries surround the types of loans they may qualify for. This guide explores the key components of two popular mortgage options.
Discover the differences between a jumbo vs. a conventional loan, and how to determine which one is best for you. For personalized lending solutions, reach out to the team at Altitude Home Loans.
How a Jumbo Home Loan Differs From a Conventional One
Lenders typically issue mortgages that fall within the loan limits set by the Federal Housing Finance Agency. These conventional, conforming loans are seen as less risky for lenders, but borrowers may be eligible for a non-conforming or jumbo loan, which exceeds the FHFA’s limit.
The biggest differences in these two types of mortgages include:
- Interest rates: Given the higher risk of a jumbo loan, it tends to come with higher interest rates.
- Down payment requirements: Homeowners are expected to put down much more up front to acquire a jumbo loan. The requirements can range from 3% down for a conforming loan to 30% down on a non-conforming loan.
- Insurance: Conventional mortgages are backed by insurers, while their non-conforming counterparts have no guaranteed insurance.
How To Tell Which Loan You Qualify For
Are you debating taking out a jumbo vs. a conventional loan? Find out which one you may qualify for based on the criteria below.
Check Your Credit Score
Lenders run a credit check before approving someone for a mortgage. If you have poor credit, a jumbo loan may not be an option. To qualify for a non-conforming mortgage, borrowers need a minimum credit score of 700, while conventional mortgages accept a score of 620.
Evaluate Your Debt-to-Income Ratio
Keeping your debt under control is key when applying for a mortgage. Lenders try to steer clear of those with a large debt-to-income ratio, especially if they’re looking to obtain a jumbo loan.
This type of home loan is suitable for those with a debt-to-income ratio between 36% and 43%. Conventional mortgages have a bit more wiggle room, as they’re less risky for lenders.
Review Your Cash Reserves
Buying a home is one of the biggest investments you can make. Not only will you need enough money for a down payment, but you’ll also have to put away cash to cover common household expenses.
Be mindful of your cash reserves if you want to take out a non-conforming loan. Your savings should cover the first year of homeownership expenses. It might be easier to get a conventional mortgage, which cuts this requirement in half.
Discuss Your Options With a Lending Specialist
Now that you know the pros and cons of a jumbo vs. a conventional loan, you can take the guesswork out of qualifying for a mortgage. Altitude Home Loans is here to help you navigate the application process so you can become a proud homeowner. Reach out to us today at 520-500-1010 to explore your lending options.