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How a Jumbo Loan Can Help You Finance Your Dream Home

Written by:
Cindy B

Do you dream of owning a contemporary farmhouse? What about a modern condominium in a big city? Are you ready to splurge and invest in a multi-generational property?  Is there a home on the market designed and built by your favorite architect? Financing a nontraditional home may not always be easy, but jumbo loans can help.

Financing Your Dream Home

Most buyers don’t realize that there is even a limit on how much they can borrow. So, how do people finance a multi-million dollar home? What about a property listed at just one million dollars? How do you afford a home in higher-end markets, like California or New York, where home prices are already higher than average? 

Buying a home in the Midwest, for example, is much more affordable than purchasing a similar home in California or New York. An amazing New York home in the mountains will cost even more. 

For this reason, conforming loans don’t always make the most sense for all buyers. The current limit on conforming conventional mortgages is set at $766,550 for 2024. This means a traditional conventional mortgage may not be available to you if you have your eyes set on a property that’s over $766,550.

How a Jumbo Loan Helps Fund Your Dream Home

Jumbo loans don’t conform to federal loans, which essentially means that they don’t have the same limits. This also means that they’re a great option for buying a home valued at over $766,550. A jumbo loan may be harder to qualify for, as lenders often require a better credit score, but it may be one of the few options available for funding your dream home.

When doing a quick jumbo loans vs conforming loans comparison, everything else is pretty much the same. The most common loan term for a jumbo loan is 30 years, similar to a conventional mortgage. Jumbo loans are also available at adjustable or fixed rates, with fixed rates offering you more reliable monthly payments.

Tips for Jumbo Loans

If you’re considering a jumbo loan to finance your dream home, you may find the following tips helpful:

Compare lenders: As with any loan, comparing lenders is always smart. Different lenders will have varying credit and debt requirements, meaning even if one denies your application, another could approve you.

Save as much as possible before buying: For a down payment with a jumbo loan, try to save as much as possible. A larger down payment can qualify you for better interest rates. With jumbo loan interest rates being between 10.01% and 25%, this can make a huge difference to your monthly payment.

Make improving your credit score a priority: Work on your credit, as jumbo loan lenders tend to have strict lending requirements. Whereas you may qualify for a conforming conventional loan with a 620 credit score, you’ll usually need at least a 680-700 for a jumbo loan. Make all loan payments on time, avoid taking on any new debt, and stay on top of monitoring your credit report.

Demonstrate sufficient cash reserves: Most lenders also require jumbo loan borrowers to show proof of cash reserves. You may have to show that you have a minimum of 12 months of payments and upkeep in your bank account before qualifying for a jumbo loan. Basically, saving is a crucial step in being able to obtain a jumbo loan.

Alternatives to Larger Loans

You may have other options if you cannot qualify for a jumbo loan or decide it’s not right for you. The easiest option is to save for a bigger down payment. The more money you’re willing to put toward the home, the less you have to finance. A large enough down payment could even shift you into conforming loan limits.

You could also negotiate a lower price with the seller. Some sellers may be willing to drop the price, especially if they find it difficult to sell since jumbo loans, in general, are harder to get. Otherwise, you may be able to find a property in a different market if supply and demand are driving up the price above limits. Some buyers may even decide to wait until interest rates drop and buying power increases.

An 80-10-10 Piggyback Loan is another alternative to jumbo loans. A Piggyback Loan is essentially a second mortgage, but this could lead to more money paid in interest.

Jumbo loans can help you finance your dream home. However, they’re not for everyone. It’s important to consider your buying needs and your ability to make the monthly payments. A larger down payment or negotiating a lower price can drop the price of the home. Otherwise, make sure you compare lenders and choose a jumbo loan provider that fits your needs.

By Liliana Alvarez

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