The Pros and Cons of a Jumbo Mortgage Loan

Whether you have a large or smaller budget, it’s a good idea to weigh the pros and cons of getting a jumbo loan from the bank. After all, purchasing a home isn’t a small purchase, so taking the time to understand your options and feel confident about your decisions simply makes sense.

What Is a Jumbo Mortgage Loan?

A jumbo mortgage loan is a type of mortgage that requires a higher initial down payment than the so-called conventional mortgage. Conventional mortgages denote mortgages with less than or equal to $647,200 in the purchase price. Conventional mortgages are offered at a price provided by a primary lender and can be easily accessible to most borrowers.

But the jumbo home loan is more expensive, and the borrower must provide a higher down payment. In exchange, the borrower can take advantage of more favorable interest rates. These mortgages are extended between banks, corporate lenders, and private lenders.The term jumbo mortgage is also applied to mortgages given to home buyers who need a loan to pay for a large purchase. However, the loan may be secured by a small property. The term jumbo loan is also used in the context of commercial mortgages.

The Pros of a Jumbo Mortgage Loan

• No PMI. One of the most significant advantages of getting a jumbo mortgage loan is that the borrower will have no private mortgage insurance (PMI) to pay. PMI is an insurance policy that protects the lender against loss in cases where borrowers default on their mortgage payments.
• No Appraisal. Many jumbo mortgage loans do not require an appraisal fee. Some private lenders will purchase a property and provide the financing without an appraisal, making getting a loan much more straightforward.
• Increased Loan Amount. Since jumbo mortgage loans have higher loan amounts, the borrower can borrow more money. This enables the borrower to purchase a more extensive or more expensive property or purchase a property with a lower down payment. Jumbo mortgage loans are not subject to the same limits and restrictions as conventional mortgages. They can be used to purchase commercial and investment properties and a primary residence.

The Cons of a Jumbo Mortgage Loan

• Higher Interest Rates. One of the biggest cons to a jumbo mortgage loan is the higher interest rate. Since the loan is larger, the interest rate cannot be relatively as low as the interest rate offered on a conventional mortgage. Over the life of the loan, the extra interest paid will be a considerable sum.
• Higher Fees. Another con to a jumbo mortgage loan is that you will pay a higher fee for the privilege of taking on a higher balance. Often, these loans come with a higher origination fee and points and higher closing costs. This can make it harder for the borrower to afford.
• Higher Down Payment. A more significant down payment is required for a jumbo mortgage loan. However, the borrower can always find the money for a jumbo mortgage loan by making the down payment on their own or by using assistance from a friend or family member.

Your Mortgage Experts in Oak Lawn, Illinois…

Jumbo mortgage loans offer a lot of opportunities for home buyers. However, they can also be risky if you’re not well informed about the home loan process. As a buyer, it’s essential to carefully consider all of your loan options, including the pros and cons of jumbo mortgage loans.

MidAmerica Bancorp, Inc. offers a range of mortgages for first-time and returning homebuyers with low down payment options. We service clients in Oak Lawn, Burbank, Hickory Hills, Chicago, and are licensed in the states of Illinois, Indiana, Florida, Michigan and Wisconsin. If you’re buying a house for the first time, we can help. Call us at (708) 237-4050 to review your home loan options!