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Buying a Luxury Home: How to Use Jumbo Mortgage Financing

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Learn more about jumbo loans in this article. Here we cover the basics of jumbo loans, how to qualify for one, and how to get the best terms.

Looking at luxury homes in Williamsburg, VA? Consider applying for a jumbo loan to finance your first luxury property. But whether you’re a first-time buyer or a seasoned investor, the jumbo loan is a valuable mortgage product to help expand your real estate portfolio.

What is a jumbo loan?

A jumbo loan exceeds the conforming loan limits depending on the state. It is typically issued by private lenders who set their own stringent rules for approval and who typically hold on to this loan as an investment, compared to conventional loans that follow the maximum dictated by Freddie Mac, Fannie Mae, Federal Housing Authority (FHA) and other government-sponsored entities (GSEs).

In most states, that ceiling for non-jumbo loans is around $510,400 (as of August 2020) though that can go up to $765,600 in places like Hawaii, Alaska, Guam and the U.S. Virgin Islands. It can also go past $1.3 million in expensive markets like San Francisco.

If you want to get approved for a loan that exceeds the conventional amount in the area that you’re buying, a jumbo loan is a great option.

View Virginia jumbo loan limits per county here.

Lenders impose stricter requirements because there is no federal guarantee for every jumbo loan they approve, which poses more risk.

But because it exceeds conforming limits, a jumbo loan allows buyers to purchase more expensive homes, particularly those in the luxury segment. And like conventional loans, it is available with a fixed or adjustable interest rate and a variety of terms.

According to MarketWatch, an estimated $1.5 trillion worth of jumbo loans were originated between 2016 and 2019 in the United States with nearly two-thirds of these loans having been originated in the nation’s 25 biggest housing markets.

Why use a jumbo loan to finance your property?

As mentioned previously, a jumbo loan is an advantageous financial tool to help you land your dream home in Virginia:

  • You can get approved for a bigger amount (and buy a higher priced home) than you would a conventional loan
  • It lets you divert more of your finances towards other investments, helping you diversify and safeguard your financial well-being
  • It’s a pathway to buying your first luxury property
  • Investing in luxury real estate is a proven wealth-building tactic that can help your financial independence

If you’re eligible for a jumbo loan, consider applying for one when looking for luxury homes for sale in Williamsburg, VA.

Tips for securing a jumbo loan

Once you’ve decided that a jumbo loan is right for you, you can follow these tips when applying for one:

Shop around for a lender. Terms and rates may vary from lender to lender. Reach out to lenders in the area for a consultation. Speaking to several lenders can help you secure the best terms. You can also use online tools like this mortgage calculator to compare jumbo loan rates.

Build your credit score. As mentioned earlier, the lending requirements for a jumbo loan are going to be much higher and this applies to your credit score. In determining your risk as a borrower, lenders will typically rate your credit score against two models, FICO and VantageScore.

Generally speaking, a credit score of 680 or higher is considered “good” though borrowers who want to qualify for a jumbo loan might need a score of at least 700.

As per Federal law, you’re entitled to a free credit score report from the credit bureaus each year.

Get ready to put 20% down. If you get approved for a jumbo loan, you will likely be required to come up with a bigger down payment for your luxury home. However, some lenders are known to require just 10% down – hence the importance of shopping around for the right lender.

Alternatives to jumbo mortgages

If the idea of a jumbo loan doesn’t appeal to you, consider other options:

  • Piggybank loans – This is a combination of two mortgages that allow you to borrow a larger sum when combined. The 80/20 approach lets you take out a mortgage for 80% of the price of the property with a second mortgage covering the remaining 20%.

    Another approach, 80/10/10, lets you take out a first loan at 80% loan-to-value (LTV) ratio with a 10% down payment and only 10% left to borrow on your second loan.

  • Bigger Down Payment – If you don’t want to use a jumbo loan, consider making a substantial down payment that can bring your mortgage amount down to conforming limits in your area.

Find your new home in Williamsburg, VA and other nearby communities with Coldwell Banker Traditions. Our company is one of the most trusted brands in real estate. Message our team here. You can also reach us at 7572.916.981 and Info(at)CBTraditons(dotted)com. We can’t wait to hear from you.