Understanding Jumbo Loan Rates

Just like with any mortgage interest, jumbo loan rates vary depending on several factors. The lowest rates you see advertised seldom apply to the majority of borrowers. And you know how important the rate is because it makes a difference in your payment and whether you qualify for the home you want to purchase. And when it comes to larger loan amounts, don't think that these are only for luxury homes. Depending on your location, a jumbo mortgage may only buy a modest property. That's the case for the San Francisco Bay area and New York City. Keep in mind, the requirements for these larger loans are much more stringent.  So, read on to find out how to prepare and get the lowest rate possible.

Jumbo Home Loan Rates Over the Years

Let's begin with what affects rates in general. The type of home loan program you apply for and how much you're borrowing impact your mortgage interest rates. If you need a loan that's higher than the conforming limits, you'll want a jumbo home loan. The conforming limits for 2023 are $726,200 for most of the country and go up to $1,089,300 for high-cost areas. When shopping for larger mortgages, borrowers often compare jumbo loan interest rates to conventional rates to see how they contrast.

Over the last twenty years up to 2013, jumbo home loan rates were quite a bit higher than conforming interest rates. After 2013, however, jumbo interest rates declined lower than conventional rates.

Stiffer Guidelines Brought Jumbo Loan Mortgage Rates Down

Unlike conventional loans that Fannie Mae and Freddie Mac purchase from lenders, jumbo loans can't be bought because they exceed the lending limits. That means investors have to purchase these loans. And the main thing investors look at is risk — will they make money or lose money?

Even though the loan sizes are larger, the risk is acceptable to many investors. That's because the guidelines are much more stringent than in the past. Now, borrowers must have high credit scores, substantial income, and assets, as well as a large down payment. In the case of a refinance, there will need to be significant equity. These newer guidelines are different from the ones leading up to the great recession of 2007. Borrowers with low credit scores and zero money down could get a jumbo mortgage with little to no documentation. These stricter guidelines are good for investors. They're also good for borrowers because they won't buy a property they can't afford.

Jumbo Loan Interest Rates — Credit and Down Payment

For the best jumbo loan interest rates, your credit score should be at least 740. And most lenders require all borrowers to have a score of 700 and above. That's why it's a smart idea to be very familiar with your current credit report and know your credit score before applying for a jumbo loan.

If your credit score is lower than 700, you'll need to fix any errors on your report to improve your credit score. Keep in mind, it's not the sales price of the home that matters. What matters is the size of the loan you're requesting. Another option is to put more money down to bring the loan amount under the conforming limits. An advantage of conforming loans is that credit guidelines are more lenient.

In addition to excellent credit, you'll need a larger down payment. The amount you need will depend on credit score and occupancy. If the home is your primary residence, you'll need 20% down. If it's a second home, vacation home, or investment property, you'll need 25% or more. Jumbo loan rates won't be the same for every borrower because there are so many variables.

VA Jumbo Loan Rates

Until 2020, there was no VA jumbo loan because the Veterans Administration followed the conforming lending limit guidelines. That changed in 2020, and now the VA doesn't have any lending limits. Keep in mind, lenders who provide VA loans have their own guidelines, which include the highest loan they're willing to offer and their required credit scores. A down payment may also be required.

If you're a veteran, it's always smart to compare VA jumbo loan rates with other loans. You can use this VA jumbo loan calculator to see your options. Compare a 30-year VA jumbo loan to a 15-year. Make sure you're also comparing costs. Whereas the VA has some of the lowest jumbo interest rates, they also have a funding fee ranging between 1.4% to 3.6% of the loan amount. And on a large mortgage, that fee can add up.

Other Things That Determine Your Jumbo Interest Rate

Besides credit score and down payment, other things affect your rate. For example, are you purchasing or refinancing?

Jumbo Loans for Purchase and Refinance

The type of loan you get can make a difference in the interest rate. Rates vary for:

• Purchase loans
• Refinance loans (rate and term)
• Refinance loans (cash out)

What's the term on your jumbo loan?

A 15-year interest will be lower, but the payment will be higher. Use a mortgage calculator to compare a:

• 15-year fixed
• 30-year fixed

Jumbo Loan Interest Rate Varies with Property Type

Single-family homes get lower rates. Is your property a:

• Single-family
• Two-unit property
• Condo
• Townhome

Occupancy Affects Jumbo Loan Interest Rates

You'll get the lowest rate if you're living in the home as your primary residence. Are you financing:

• Your primary residence
• Second-home
• Investment home

As you can see, there's a lot that goes into determining jumbo interest rates. But no matter what size loan you need, the professional mortgage team at PenFed is here to help. We hope you've enjoyed this information about jumbo loan interest rates. Please keep us in mind the next time you need a new mortgage or are thinking about refinancing.