September 9

What Is a Jumbo Loan and will you need one when moving to Seattle?

How will you finance your home in Seattle this year?

House prices have been heading up. That means you may need a larger loan when purchasing or refinancing a home in Washington State.

So, is a jumbo mortgage for you? What are the cons of these loans? What other alternatives and loan program options might be right for you?


Bigger Houses Prices, Bigger Mortgage Loans

As of mid-2021 the average house price in Seattle, WA was almost $840,000. 

That’s up almost 9% since last year. With house listings still not coming online as fast as buyers would like, bidding wars are fierce, with the majority of homes selling in days, and for significantly over the asking price. Analysts expect this to keep pushing up property prices through the end of the year. 

More households may be forced to buy this year as landlords have been scared off of renting after a year of eviction bans.

Treasury secretary Janet Yellen has also claimed that higher interest rates could be a good thing. Any switch by the Fed to start raising rates could trigger even more people to buy before they go up further. 

Whether you are thinking of refinancing your home in Seattle or buying one, you may need a bigger loan this year. So, how big should you go?


Do You Need A Jumbo Mortgage Loan?

The biggest home loans are known as jumbo mortgages, or even ‘super jumbo’ home loans. 

A jumbo mortgage comes into play when borrowers exceed conforming loan limits

Conforming Loan Limits For 2021

Each year the Federal Housing Finance Agency (FHFA) sets the loan limits for traditional mortgage loans made by most banks. These are considering ‘conforming loan’ limits. Loans that conform to industry guidelines.

For 2021, the FHFA raised the national conforming loan limit to $548,250. 

That is around $30,000 more than the limit in 2020. Though the average home in Seattle went up in price by around $80,000 in the past year. 

It is almost $300,000 less than the average priced home in Seattle.

The good news is that the FHFA has made exceptions for three high cost counties in Washington State. For Pierce, Snohomish and King County, Washington, the expanded conforming loan limit is now $776,250. 

Any loan larger than this would typically be considered a jumbo mortgage loan.

Why You May Not Need A Jumbo Mortgage Loan After All

Remember that this is all about the actual loan amount you need, not the purchase price of a home. 

So, if you are buying an average priced home for $840,000, and make a 10% down payment, you would only need to borrow $756,000. Which will keep you under the conforming loan limit. 

In fact, you purchase a home for $970,000, and with a 20% down payment, you only need to borrow $776,000. Still keeping you under the jumbo mortgage threshold. 


How Are Jumbo Mortgage Loans Different?

The loan amount is what really differentiates jumbo mortgages from other types of home loans.

There are some differences you can expect with a jumbo versus conforming loan. 

Availability

Jumbo mortgage loans may not always be available. Due to their size mortgage lenders view these loans as riskier to make. They are at greater risk by giving so much money to one borrower. So, during more uncertain times, they may raise the qualification requirements for these loans, price in their higher perceived risks, or may even temporarily suspend making these loans, as they have often done with home equity lines of credit as well.

Down Payments

Jumbo mortgage loans often come with higher down payment requirements. Expect to make a down payment of at least 10% to 20% when borrowing more than the conforming loan limit.

Underwriting Requirements

Additional underwriting requirements for jumbo mortgage loans may also include:

  • Higher credit score requirements
  • Second appraisals
  • More assets
  • Stricter DTI ratios


Alternatives To Jumbo Mortgage Loans

There can be benefits to staying below the jumbo mortgage loan amount

This can include:

  • Easier underwriting
  • Faster loan processing
  • Better interest rates
  • Lower down payments
  • More loan program options

If you would prefer to stay under the jumbo mortgage limit, there are a couple of options.

Make A Larger Down Payment

Remember, it is all about the loan amount. So, you can buy as expensive a home as you like, and providing you only borrow $776,250, you are still within the conforming loan limit. Just make up the difference with your down payment. 

Use Multiple Loans

You may use a first and second mortgage loan, to keep your main mortgage loan under jumbo territory. For example a $776,000, 80% first mortgage, a $97,000 10% second mortgage, and a 10% down payment. Also known as a piggyback loan or 80/10/10.

Explore New Places To Buy

You may find that you can get a lot more home than you expect if you take a look at all of the Seattle suburbs and neighborhoods on offer. Some offer a lot more value and space for the money than others. Some are even choosing to go as far as Tacoma where house prices are much lower, to find even better deals. 


Summary

Seattle real estate has become even more expensive, and seems likely to keep on growing. While you may need a bigger loan this year, you may not need a jumbo loan to get a great home of your own. If you do feel you need to borrow more, get in touch with a Seattle mortgage broker to find the best way to get a jumbo sized loan.



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