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Jumbo Loans – Going Down?

For the past five years, interest rates on new mortgage products have fallen to incredibly low levels. This, coupled with decade-low housing prices, makes purchasing a home today one of the most affordable times in history. While mortgage rates on conventional home loans are incredibly low, those looking for jumbo mortgages tend to have to spend more money on interest.

A jumbo mortgage is a mortgage that has an initial principal balance that is in excess of the amount that can be guaranteed by mortgage giants, Freddie Mac and Fannie Mae. Since these loans cannot be backed by these two mortgage giants, less banks are willing to provide these mortgages and those that are tend to charger higher interest rates. Mortgages that have a balance of $417,000 or more are typically considered to be jumbo mortgages. However, federal sponsorship has recently increased that limit to the lesser of $729,500 or 125% of the median home value in the home’s immediate area.

Jumbo mortgage rates tend to be up to 1% higher than a standard mortgage. While this may not seem like a lot of huge increase, it equates to about a $300 higher monthly payment for a $500,000 mortgage. While jumbo loans rates may be higher than standard mortgages, there are ways that a borrower could receive a lower rate.

One of the best ways to receive lower jumbo mortgage rates would be to put more money down. Banks tend to increase the rates that they provide to customers as the principal balance of the loan increases. If you are able to put more money down, you may receive a lower mortgage rate offer and you may even end up qualifying for a more conventional mortgage, which could save even more money in the long run. Putting forth 20% or more will allow you to avoid paying PMI, which is an additional monthly charge paid by those that put forth less than a 20% down payment.

Another way that jumbo loans rates can be lowered is by improving your credit history and credit score. Banks tend to offer higher rates to people with credit scores of 740 or less. If you are near that mark, simply paying down your credit card balances or paying off charged off accounts could improve your score enough to allow you to qualify for the lowest rates offered by the mortgage lenders.