When it comes to saving money, a little know-how, some commitment, and practice all make the task easier as time goes on. Setting your child up with the opportunity to start saving money from a young age is an awesome way to ensure that they are prepared to make smart saving and investing decisions once they start working as an adult in the real world. Assigning paid tasks around the house and using jars as “bank accounts” for saving and spending is an effective foundation to start with. Here, you’ll learn tips, tricks, and techniques that can be implemented as your little one ages to accommodate their learning abilities and maximize their chance of saving success in the future.
Teaching Your Little one to Save Like a Pro
5 Things You Should Know Before Getting A Jumbo Loan
Claudia Bravo
If you are considering purchasing a home with a mortgage greater than $417,000, you'll likely need a jumbo loan. Except in a few counties where home prices are significantly higher, this $417,000 limit puts you outside of the requirements of a conforming loan because the government won't back the larger mortgage. You'll have to borrow from a private bank, instead. Here are 5 important things you should know before getting a jumbo loan.
1. Your interest rate will be higher. Conforming loans have to meet requirements set by Fannie Mae and Freddie Mac so the government will guarantee the loan. Once a loan passes the $417,000 limit, it no longer meets these requirements. Since the vast majority of mortgage loans are sold to either Fannie Mae or Freddie Mac, jumbo loans are more difficult to sell. Lenders compensate for this risk by raising the interest rate, ensuring that the loan will be profitable for them if they aren't able to sell it. You should expect your jumbo loan rate to be about 1% higher than a conforming rate, depending on your lender and the type of loan. To lock in a lower rate, consider an Adjustable Rate Mortgage instead of a fixed rate.
2. Your Loan to Value (LTV) will likely need to be less than 80%. With conforming loans, you can borrow up to 90% of the value of your home. If the home appraises for $200,000, you can borrow up to $180,000 and still meet the requirements for Fannie Mae and Freddie Mac. Since jumbo loans are riskier for the lender, the maximum LTV limit is usually 80%, and sometimes even less. This means that you'll need to come up with a much larger down payment.
3. You need fantastic credit. Since jumbo loans are risky for lenders, they'll expect the borrower to have excellent credit. Most jumbo lenders are currently considering borrowers with credit scores above 700, but if you're in the high 600s, you may also be able to find a lender willing to give you a jumbo loan. The higher your credit score, the better your rate and terms will be.
4. The reserve requirement is much higher. When you apply for a mortgage, the lender will take a look at your finances to see how much money and liquid assets you have in reserve. The higher your reserves, the less likely you will default on the mortgage, and the less risk you are to the lender. For jumbo loans less than $1.5 million, you'll need at least 12 months of payments in reserve at the time of closing. So, in addition to coming up with a larger down payment for your jumbo loan, you'll also need to have a nice chunk of cash in savings.
5. As the mortgage amount increases, the terms become more strict. Finally, expect that all of these requirements will become more strict as your loan amount increases. If your mortgage amount is more than $1 million, you'll see higher interest rates and lower LTV requirements. You'll also need to have a better credit score and much more money in reserves. Again, the lender is trying to reduce the risk of the jumbo loan. If you're considering a jumbo loan, be sure to shop around for the best terms. Zillow's Mortgage Marketplace is an excellent source for anonymous mortgage quotes.
Jumbo loans certainly aren't for everyone, but if you're financially secure and ready to purchase a more expensive home, they are a great option. If you're prepared to pay a higher interest rate and provide a larger down payment, have great credit, and have plenty of money in reserve, you'll likely find a great deal on a jumbo mortgage through a private lender. With the right jumbo loan, your dream home can be yours in just a few weeks.
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