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12 / 15 / 2022

What is an appraisal and how can it affect your home loan?

After months of searching, you’ve finally found the perfect home and are already picturing your family relaxing in the den. The last thing you want is a problem during the loan process that derails your dream. Understanding the home-buying process is critical to making things go smoothly. One item you need to know is the home appraisal. What is a home appraisal, and how can it affect your home loan? Let’s dive in.

What is an appraisal?

When purchasing a home and applying for a mortgage, one of the first steps the lender will do is order an appraisal. The house will need to be evaluated by an independent, unbiased professional appraiser to estimate the home’s current market value. A home appraisal is an expert’s opinion of the value of a given property.

How is an appraisal based?

The value of a home is based on its general condition, age, location, and size. The number of bedrooms and bathrooms, plus any structural improvements, like remodeled rooms or additions, are critical factors. Amenities are another consideration—is there a swimming pool on the property or a boat dock? Features such as hardwood floors or majestic views also influence value.

The purchase price of comparable properties within a given radius is a crucial component. These prices demonstrate what the market is willing to pay for a home similar to the one being appraised and generally carries the most weight.

Because the home will be used as collateral for the mortgage loan, the lender needs to be assured that the money loaned doesn’t exceed the home’s value, should the buyer default. The lender will typically order the appraisal, but the appraisal cost is paid by the buyer (generally between $300-$400).

The appraiser will visit the home and visually inspect the interior and exterior. They’ll take measurements and note any conditions that might positively or adversely affect the property value. The appraiser will also research recent home sales in the areas and deliver a final appraisal report that includes an opinion of value.

What if the appraisal is lower than the sale price?

If the appraisal value is lower than the sale price, you’ve reached a fork in the road. The mortgage lender is unwilling to approve a loan for more money than the home is worth. You can use a low appraisal to encourage the seller to lower the home’s price, or you can choose to make a larger down payment. With a larger down payment, the amount you need to borrow will be less than the appraised value.

If you feel the appraiser understated the value, you could challenge the estimation or get a second opinion. Sometimes home values lower due to foreclosures or short sales in the area. You may convince your appraiser that this was the case with some of the comparable properties while at the same time, proving that your home is in significantly better condition than those that were sold at a discount.

What if the appraisal is higher than the sale price?

If the appraisal value is higher than the sale price, this transaction can keep moving along as planned. The expert opinion of the appraiser is that the value of your soon-to-be new home is higher than what you’ve agreed to pay. Congratulations—you already have equity in your new home!

The value of an appraisal

The appraisal process isn’t meant to put a roadblock between you and your dream home—it’s there to protect you and the lender. You don’t want to unknowingly overpay for a home, especially if you need to sell it in the short term. It could be worth less than you owe, and that’s an unfortunate situation for everyone. From the bank’s perspective, they don’t want to own a house they can’t sell to cover the outstanding loan balance in case of a loan default.

In the home-buying process, the appraisal is just one of many things that need to occur to get to the closing table. Regardless of whether your appraisal comes in high or low, understanding the process is your best defense to managing the hurdles until you get to your home sweet home.

Have questions about buying a home? We’re here to help!

08 / 03 / 2022

What is an adjustable-rate mortgage?

There are dozens of factors to consider when buying a house, from your lifestyle and desired neighborhood to your home’s style and features. It also involves finding the right home that fits your budget—including your loan term, interest rate, and monthly payments. If you’re debating your mortgage options, consider if an adjustable-rate mortgage (ARM) works for you.

What is an adjustable-rate mortgage? 

An adjustable-rate mortgage, sometimes called a variable-rate mortgage, is a home loan with an interest rate that fluctuates throughout the loan term based on the market. ARMs typically start with a lower interest rate compared to fixed-rate mortgages, making them perfect for borrowers looking for the lowest possible rate.

How does an ARM work?

Adjustable-rate mortgages have fluctuating interest rates. Depending on your lender and the ARM you choose, the rate will stay the same for a set period. The rate could stay the same for the first five months or five years—your monthly payment then fluctuates after the lock period. The lock period is the set time where borrowers lock in the typically low interest rate. Once that period ends, the rate resets to the prevailing interest rate.

ARMs are typically advertised as two numbers. The first number represents the lock period, or the length of time your initial interest period lasts. The second number represents how often your rate changes once the lock period ends. For example, a 5/1 ARM has a fixed interest rate for the first five years. Once the five years conclude, the rate can adjust once annually until the loan term ends.

Most ARMs feature an adjustment cap, which limits how much the interest rate can fluctuate at each adjustment period. A 7/1 ARM with a 5/2/5 adjustment cap structure means the rate remains unchanged for the first seven years of the loan. During the eighth year, your rate can increase by a maximum of five percentage points (the first “5”) above the initial interest rate. After, your rate can adjust yearly (either up or down) a maximum of two percentage points (the second “2”), but it can never increase more than five percentage points (the third “5”) over the life of the loan.

What types of ARMs are available? 

Hybrid adjustable-rate mortgage

Hybrid adjustable-rate mortgages have a fixed-rate period, followed by an adjustable-rate period during which interest rates can increase or decrease. The borrower will pay the principal amount and interest throughout all loan periods. Some standard hybrid ARMs include 3/1, 5/1, 7/1, and 10/1—meaning they offer a fixed rate for the first three, five, seven, and 10 years, with rate adjustments allowed once every year afterward. Other hybrid ARM options exist but are less popular, such as a 5/5 ARM, which has an initial, five-year, fixed-rate period. It then transitions to an adjustable-rate phase in which the interest rate adjusts once every five years.

Interest-only adjustable-rate mortgage

Interest-only (I-O) adjustable-rate mortgages offer the option to only pay interest for a set amount of time before you begin paying the principal balance, as opposed to paying both principal and interest. With an I-O home loan, you have smaller monthly payments that gradually increase as you begin to pay the principal. Most I-O periods last three to 10 years—the longer your I-O period, the larger your monthly payments will be after the I-O period ends. I-O ARMs tend to be a little riskier, as borrowers assume the risk that interest rates will rise, plus a larger payment once the interest-only period ends.

What is the difference between a fixed-rate and adjustable-rate mortgage?

Fixed-rate mortgages have a different structure than adjustable-rate mortgages. Comparably, fixed-rate mortgages retain the same interest rate for the entire loan term—meaning the monthly mortgage principal and interest payment remains constant. For borrowers on a strict budget, fixed-rate mortgages can be a more practical option, as you know exactly how much you’re responsible for each month. Fixed-rate loans also offer coverage from sudden or significant increases in monthly mortgage payments if interest rates rise.

Adjustable-rate mortgages typically charge less interest during the introductory period, thus offering a lower initial monthly payment. If interest rates go down, ARMs can be a cheaper option than a fixed-rate mortgage. But, if interest rates rise, an ARM can become costly.

For example, a borrower is looking at a $300,000 mortgage, and they are debating between a 5/5 ARM or a 30-year, fixed-rate mortgage. With the 5/5 ARM option, the borrower is looking at an interest rate of 3.5% for the first five years of the loan—their monthly payments for the first five years would be an estimated $1,347. However, after the lock period, this payment will reset using an interest rate that could potentially increase your monthly payment. With the 30-year, fixed-rate option, the borrower is looking at an interest rate of 4.5%—their monthly payments (assuming they do not refinance) will remain at $1,520 for the entire loan term.

When should you choose an adjustable-rate mortgage? 

There are various situations when a borrower should choose an adjustable-rate mortgage rather than a fixed-rate mortgage. ARMs are perfect for borrowers who have jobs requiring frequent relocation, allowing them to enjoy the stability of home ownership at a lower cost in their current location. If you’re purchasing a starter home with plans to expand in a few years, or if you’re in the opposite situation and are planning to downsize, an ARM may be for you. Lastly, ARMs are great for those who expect an increase in income, such as doctors in residency. They may presently have a lower income and high student loan balances but they can reasonably expect their income to increase—and handle the uptick in costs.

Borrowers who expect to stay in their homes for a long time may be better off with a fixed-rate mortgage since the payments are dependable and consistent. The same is true for those who have a strict budget. Fixed-rate loans mean you’re paying the same amount each month, and ARMs may be too much to take on if your finances are tight—even if that’s a few years from now.

Choosing an adjustable-rate mortgage or fixed-rate mortgage is just one consideration when purchasing your home—and Georgia’s Own is here for every step. With various mortgage options that fit your needs and budget, like 5/5 and our 7/1 ARMs or 30- and 15-year fixed-rate loans, our mortgage specialists are here to help you find a loan that works best for you. Click here to learn more about our mortgage options or contact a mortgage specialist today.

02 / 24 / 2022

Should you consider a mortgage from a credit union?

Homebuyer demand remains strong, with pending sales 38% higher than at the start of the pandemic. As home prices and mortgage rates climb, choosing where to acquire a mortgage is a crucial decision. It’s essential to find a mortgage that works best for you and your needs, plus the best rate, so you can save money in the long run. If you’re in the market for a home, consider these reasons to obtain a mortgage from a credit union.

Credit unions offer lower rates

A credit union is a not-for-profit financial institution that is owned by its members rather than shareholders, so it’s able to return profits to and invest in members. That’s why credit unions can typically offer lower rates on loans. As of December 2021, a 30-year, fixed-rate mortgage with a credit union has an average rate of 3.18%, according to the National Credit Union Association. However, a mortgage with the same terms but from a bank has an average rate of 3.20%. Even though the difference is small, it still helps you save money in the long run. Dozens of factors determine your rate and providing a loan, so the best way to know what rate you qualify for is to contact the financial institution directly for a quote.

There are fewer fees

There are dozens of costs and fees associated with acquiring a mortgage—closing costs, origination fees, vendor fees, and other processing costs. Credit unions prioritize helping people over turning a profit. So, when you obtain a mortgage with a credit union, origination fees and processing costs are often reduced. These reduced fees can save you thousands of dollars.

Credit unions are less likely to sell your loan

Lenders typically sell a mortgage for two reasons: they need to open more lines of credit to lend money to other borrowers, and they make money from the sale. Usually, having your mortgage sold isn’t a big deal. However, when your mortgage is sold, this can sometimes result in confusion regarding where you should make your payment. If your payment is made to the wrong institution, you could incur late fees. Credit unions don’t typically sell their mortgages because their ultimate concern is to preserve the relationship between the institution and the member. Banks, however, are more likely to sell your loan. Even though credit unions don’t often sell their mortgages, it’s best to refer to your contract just to be sure.

Credit unions provide more personalization

Credit unions are often more attuned to their members’ needs, so they tend to offer a personalized experience. They normally serve a select area, so they’re able to focus on what specifically will benefit its members or how they can help when members are in need. For example, throughout the COVID-19 pandemic, many credit unions helped members alleviate financial burdens by providing mortgage forbearances or deferments. Credit unions are dedicated to preserving the relationship between its members and ensuring their best interest is served. Plus, it’s easier to receive services through an institution with which you have a relationship.

If you’re not a member, you can easily obtain membership to a credit union. At Georgia’s Own, there are a few simple ways you can become a member. If you meet the requirements and are approved, all you need is a $5 deposit to establish your membership, which represents your share in the Credit Union. Requirements at other institutions vary.

If you’re purchasing a home, consider Georgia’s Own for all of your financing needs. We offer low rates, up to 100% financing, a program for first-time home buyers, and more—we even provide refinancing. Ready to start making memories in your dream home? Click here to learn more about our mortgage options or apply today.

 

11 / 17 / 2021

Buy your first home and avoid these 7 mistakes

You’ve been looking at online home listings for months, driving through neighborhoods on the weekends, and saving every spare dime for a down payment. You’re finally ready to take the plunge and buy a home.

Buying a house is one of the most exciting—and stressful—times in your life. You’re eager to find your dream home and start the next chapter of your life, but let’s be serious—a home is a big investment, and you can’t afford to make a hasty, uninformed, or emotional decision.

Here are seven of the most common blunders homebuyers make and how you can avoid them, or at least learn from their mistakes.

1. Failing to check your credit report

Amazingly, Consumer Report’s latest study of credit reports found that 34 percent of consumers had at least one inaccuracy in their credit report. Not all of those errors would have impacted their credit rating to the point that it resulted in a higher mortgage interest rate, but it certainly would have for some.

It’s critical to review your credit report at least three months before you plan to buy a home and apply for a home loan. If you find an error, you’ll have time to dispute it and have it corrected before lenders check your credit report for preapproval. If your credit report is clean, it will improve your credit score and likely impact the interest rate on your mortgage. All consumers can access a free copy of their credit report annually from annualcreditreport.com.

2. Skipping the mortgage pre-approval

There’s pre-qualified and pre-approval. Both show the seller that you’re a serious buyer, but pre-approval requires a credit check and the submission of supporting documentation for income and assets. It will also help you save time by allowing you only to view homes that you already know you can afford instead of falling in love with one that’s outside of your price range. Put in an offer, and a buyer who already has pre-approval has a leg up on a buyer who doesn’t.

3. Missing the hidden costs

Once you find your dream home, most buyers simply calculate their mortgage payment and say, “Sure, I can afford that.” When reality sinks in, you soon figure out that you’ll need to pay taxes, insurance, utilities, HOA, and maintenance fees. These are the hidden costs that may just push you over the top of your budget. If you’re a first-time homebuyer, it might be the closing costs, appraisal fees, escrow fees, and moving costs, among others. You can’t forget about the added costs that come with purchasing a home and the extra responsibility of being a homeowner.

Ask the sellers about their summer and winter utility costs, HOA fees, and property taxes. Talk with your insurance agent about the cost of a homeowner’s insurance policy and ask your broker for an estimation of your closing costs. Gather as many quotes and estimates as you can so that you can make a more informed decision about whether you can afford to buy this home. It’s better to know the truth sooner than later.

4. Waiting for everything on your wish list

In the real world, when do we get everything we want? Even when you’re spending $100K, $300K, or $500K, there will always be a compromise. Here’s our advice: keep an open mind. It’s unlikely that any one home will have everything on your wish list. You’ll need to separate those wishes into wants, like a fireplace or a fenced yard, and needs, like a garage or four bedrooms. You might even label some of them deal-breakers, such as a specific town, school district, or its proximity to your office. Flexibility is a critical component in the house-hunting processes. The goal is to find the home with the most wants and needs that still fits within your budget.

5. Assuming the neighborhood is just fine

You may have found love in a home, but if the neighborhood isn’t up to par, it could be a costly mistake. With a house comes the neighborhood, so take a good look around before you buy—and do your research. Not everything a homebuyer should consider is out in the open.

Think about the reasons you’re purchasing this home. Do you have children? The quality of schools in the area might be an important factor to consider. Visit the schools personally and take a tour. Review information, rankings, test scores, and other analytics online. Drive through the neighborhood at different times of the day and chat with parents as they wait for their kids to come home on the school bus.

Does the neighborhood feel safe at night? How’s the local shopping? Where’s the nearest grocery store or park? These are all questions you should investigate before purchasing a home.

6. Not considering the resale value of your home

You’re buying a home, not selling one, so why worry about resale value? It’s simple. Sooner or later you’re going to want to sell this home, and you’ll need someone to buy it. Don’t buy the home with the railroad tracks running through the backyard just because it has a gourmet kitchen that you’ve fallen in love with—there’s a reason it’s priced below market value and a bonus if you can close in 30 days.

The best approach is to look for a home that offers the general preferences of a typical homebuyer. You can paint, decorate, and furnish to add your personal style, but when you’re ready to sell, whether in a year due to a job transfer or in 40 years when you retire to the beach, your home will appeal to the highest number of prospective buyers.

7. Letting your emotions rule your decision

The decision to purchase a home should be made primarily with your head, not your heart. Yes, you should love your new home. After all, you’re investing a ton of money to own it, and you’ll be living in it every single day. But, you shouldn’t be so enamored that you’re blinded to what it can do to your budget. When you’re already spending such a large amount of money, another $10K or $15K doesn’t seem like very much, but it can put you in a tighter financial situation than you’re prepared to handle. One layoff, job change, illness, or any other situation that causes a reduction in salary can easily cause your dream home to become a burden.

One recommended guideline is to spend no more than one-third of your monthly income on housing costs, which includes your total mortgage payment, taxes, and insurance–no matter how tempting it is.

If you’re in the market for a new home, consider Georgia’s Own for all your home-buying needs. From fixed-rate mortgages and ARMs to jumbo loans and options for first-time homebuyers, we offer dozens of options that can get you into the home of your dreams with little or no money down—and our team of knowledgeable mortgage specialists is ready to help you through each step of the mortgage process. Click here to learn more or call 800.533.2062 to get started today.

07 / 15 / 2021 — homebuyer, tips

Advice for first-time homebuyers

Buying a home for the first time can be overwhelming if you aren’t prepared—there are dozens of factors at play, like how much you should budget or the true cost of owning a home. We know this firsthand, so we asked some of Georgia’s Own for their advice to first-time homebuyers. Below are eleven things we wish we had known before buying a home:

You’ll need more money than you think

“You need more money than the cost of the house (earnest money, closing costs, etc.). I didn’t think they were actually going to cash the earnest money check.” – Will M. 

“There are lots of costs leading up to the purchase. Be prepared for those extra costs and fees.” – Grace H.

When purchasing a home, you’ll need more money than you think—take earnest money, inspection costs, closing costs, property taxes, and more into account. As a first-time homebuyer, some of these terms may be unfamiliar—like earnest money. Earnest money essentially informs sellers that you’re serious about the offer you’re making—the amount can vary, and you’ll usually get the money back, or it’ll go towards your home purchase.

Consider more than the appearance

“The most important thing about a home is not how it looks. If the size, space, and location will be right for you five or ten years down the road, the rest can be fixed.” – Laura S.

Consider more than just the home’s appearance. While curb appeal is essential—the attractiveness of a home can boost its value by 7% or more—there are other factors you should consider besides looks. If the home has the right number of bedrooms or the location drastically reduces your commute, those are elements that will make your home invaluable to you. If you’re not completely satisfied with the outside of the home, that’s okay—you can renovate later.

Always have availability

“Be available at all times to do whatever’s asked of you, and quickly! The process can be stressful, so be prepared.” – Eve Y.

Even though your buyer’s agent will be doing most of the legwork, you’ll need to put forth effort on your part, too—and that means always being available to do whatever is asked of you and quickly. Your agent may call because there’s urgent paperwork you need to send, or they’re trying to negotiate with the seller and need your immediate input.

You can add funds to your loan

“I wish I had known I could add funds to our loan for renovations. It would have been helpful to know beforehand.” – Kaye E.

If you’ve found the perfect fixer-upper and are wondering how you’ll pay for the renovations, your choices might be better than you think. Various options allow you to add the cost of a renovation to your mortgage, even if you don’t have equity. An FHA 203k Loan or a Fannie Mae HomeStyle® Renovation Mortgage is a government-sponsored renovation mortgage that allows you to finance the cost of buying a home that needs repairs and the cost of renovations, bundled into one loan.

Know the home’s condition

“Look in all of the cabinets and closets. Not to snoop out what they have, but to get a better idea of the condition of the home.” – Rebecca M.

While tackling the house-hunting process, it is acceptable to open closets, cabinets, pantries, and appliances (if they’re staying with the home). Looking inside cabinets and closets can indicate the home’s condition—for example, you can check kitchen cabinets to ensure they open and close properly or that there’s no mold or mildew.

Get a home inspection

“Get a home inspection during the due diligence time frame and request the sellers fix anything beforehand, especially anything major.” – Alex Q.

If there’s one thing you absolutely must do when purchasing a home, it’s getting a home inspection. Inspections are comprehensive reviews of a home’s condition and alert buyers to any major issues—common ones include roofing issues, electrical problems, window and door issues, foundation problems, or chimney damage. Buyers normally pay for their home inspection, but sellers who may be concerned about findings sometimes opt to pay for a pre-inspection. Never waive a home inspection—it may cost a chunk of change now, but it’ll help you save big in the long run.

Consider possible repairs

“Be sure to look beyond just your mortgage payment when considering whether you can afford it. Houses will need repairs.” – Kaitlyn R.

“Purchase at a lower price than your budget so you can get the repairs done your way. Don’t trust the sellers to get the repairs done completely or the way you’d have them done.” – Cassie W.

Consider purchasing a home that is priced lower than your budget to allow for repair funds. Your inspector may find that the home needs a few repairs. While this is typically a seller’s responsibility, there is a caveat—the seller may not have the repairs fully completed, or they may not take care of them the way you would. You can request a concession in an amount that is enough to cover repairs.

Set up bi-weekly payments

“Set up bi-weekly payments from the very beginning! It’ll help so much in the long run and is not something anyone told us.” – Kristin H.

Bi-weekly mortgages allow homeowners to make payments every two weeks rather than every month. Bi-weekly mortgage payments equal 26 half-payments per year—a total of 13 full payments. This helps reduce overall interest costs, plus an extra payment can help borrowers pay off their home loan sooner. However, there is a catch—it’s a firm commitment and cannot be changed month-to-month, so you need to determine if you can keep up with additional payments.

Property taxes can vary

“I wish someone had let us know how property taxes can vary greatly by county!” – Abby C.

When buying a home, there are a few external factors to consider, like property taxes. Property taxes can vary immensely by county, and it helps fund things like education, transportation, emergency services, libraries, parks, and recreation. It’s not regulated by the federal government—instead, it’s based on state and county tax levies. Depending on where you’re located, your annual property tax bill can be lower than your mortgage—in other areas, it could be three to four times your monthly mortgage. Because they’re variable and location dependent, it’s something to consider when you’re determining where to live.

Be prepared for emergencies

“Have an emergency fund! Our septic tank flooded not long after moving in. I wasn’t prepared for the headache or cost involved with fixing it.” – Andy C.

Unfortunately, emergencies happen. Your HVAC unit can break, your appliances can malfunction, your basement could flood, or you could encounter some plumbing issues—just to name a few. Homeowner’s insurance can help offset some costs, but not everything is covered. As a renter, it was relatively easy to handle these emergencies with a quick call to your landlord or property maintenance. But, as a homeowner, these are now your responsibility—and they can add up. Be prepared and have an emergency fund so these unexpected costs don’t drain your bank account.

Stay on top of routine upkeep

“With a house comes maintenance and upkeep. Budget for those extra expenses and stay on top of routine upkeep to prevent major issues down the road.” – Becky B.

As a homeowner, ongoing upkeep and maintenance are essential to preventing major issues in the future. Regular maintenance includes mowing your lawn, cleaning your siding, power washing, cleaning gutters, replacing air filters, or having appliances serviced. You should expect to spend between 1% and 4% of your home’s value each year for maintenance. For example, if your home is $300,000, you should save between $3,000 to $12,000 for annual upkeep. There are a few other factors to consider, too, like your home’s age, size, or the climate in your area.

Buying a home is one of the biggest purchases you’ll ever make, so it’s important to understand what truly accompanies homeownership. But, it doesn’t have to be overwhelming.

Ready to start your home-buying journey? Explore your options with the experts at Georgia’s Own.

 

12 / 21 / 2020

Jumbo loans 101: Do you need one?

If you’ve never heard of a jumbo loan, it might sound like something you would find in a cartoon movie. But jumbo loans are very real and have gained popularity over the last few years. For the novices in the jumbo loan game, or if you just need a refresher, we’ve compiled some info you need to know before considering a jumbo loan, plus some pros and cons to know before you borrow.

What is a jumbo loan?

A jumbo loan, or a jumbo mortgage, is a type of financing that lends more than the amount of a conventional conforming loan, according to the limits set by the Federal Housing Finance Agency, or FHFA (the maximum loan amount is $510,400 in most counties as of 2020). You may also hear this referred to as a non-conforming conventional loan. While a conventional conforming loan is backed by Fannie Mae or Freddie Mac, jumbo loans are a horse of a different color in the finance world and are not guaranteed or securitized for lenders.

Why would I want a jumbo loan?

Typically, jumbo loans are used for instances like purchasing an expensive real estate property, purchasing a home in a highly competitive market, or purchasing real estate or a residence in an area that is generally more expensive to buy in, like New York City or San Francisco. Essentially, a jumbo loan allows you to borrow more than you would get with a conventional conforming loan.

What’s the catch?

A jumbo loan sounds almost too good to be true. While many people find that a jumbo loan is a great fit for them, it’s important to understand the commitment involved and the financial implications of taking out such a large loan. Let’s look at some pros and cons of jumbo loans.

Pros:

More money: As we stated above, the whole point of a jumbo loan is to get more money. If you qualify for a jumbo loan, you will be borrowing more money to buy what you want to purchase. Depending on your goals, this could continue to create a profit for you in the long run – for instance, if you were using the jumbo loan to buy real estate in a prime location that you could then rent out for more money.

Low down payment: For your conventional conforming loans, you can be required to put down at least 20% of the loan amount as a down payment. But a jumbo loan usually only asks for 10% as a down payment, sometimes even going as low as 5%. This means more savings for you up front.

More choices: Flexibility is the name of the game for jumbo loans. You can find one that is fixed over 30 years, or you can find one with an adjustable rate. Due to the nature of jumbo loans and what they are typically used for, it is easier and more common for lenders to tailor the loan to your needs, instead of you borrowing money on terms that are created for a demographic that doesn’t apply to you.

Cons:

More money: Yes, we realize this is also listed in the “Pros” section. But the jumbo loan is just that – a jumbo loan, meaning you need to be able to repay a jumbo amount of money. This type of loan often even requires you to put aside 12 months of your mortgage payment in savings to ensure that you won’t fall behind on payments.

More work: You will need a high credit score to secure a jumbo loan. It isn’t enough to pay most of your bills on time – you need to have a FICO score of at least 660, and, failing that, be prepared to make a larger down payment. If you think a jumbo loan is in your future, go ahead and start taking steps to improve your credit score.

High income requirements: Most lenders are going to approve jumbo loans for people who have a high annual income. Since they do not have the FHFA backing these loans, they want to ensure that their loan to you can be repaid. This means looking closely at your income, as well as your other financial assets and your loan repayment history. So, again, if you think you will need a jumbo loan to make your real estate dreams a reality, it’s time to lay the groundwork by growing your assets now.

So is a jumbo loan right for you? That’s for you to decide. But if you are still unsure, we always recommend consulting with a mortgage professional who can help you understand exactly what a jumbo loan means for your individual situation. A jumbo loan takes a lot of consideration, so begin researching your options as you plan for your financial future.