Conventional vs. Jumbo Mortgages: Which is Best for You?
With the median home prices in Central Oregon continuing to increase, the question of conventional mortgage vs. jumbo mortgage may be the most important part of the home buying process. The differences between a conventional mortgage (sometimes referred to as conforming or traditional) and a jumbo mortgage create significant challenges for buyers.
If there is anything that is certain in this life, it is debt. Managed well, debt can be a good thing. More so than the costs of a house, the amount of money you need to borrow to make that purchase hinges on a number of factors worth considering.
What is a conventional mortgage?
The current cap for conventional mortgages is $417,000. These types of loans require proof of income, a reasonable debt-to-income ratio, an acceptable loan-to-value ratio and of course, a good-to-great credit score.
What is a jumbo mortgage?
While the $417,000 baseline for jumbo mortgages applies to most of the country, certain high-end neighborhoods may have much higher thresholds before jumbo terms kick in. Jumbo mortgages also require proof of income (and proof that you have six months of mortgage payments in reserve often in the form of liquid assets), reasonable debt-to-income ratios, an adequate down payment (often 20-30% but just as often, negotiated lower) and stellar credit.
Do self-employed home buyers need additional information?
The above descriptions are very basic and apply to many of the people shopping for a mortgage. But it does not apply to everyone. In the current Gig economy, where people contract work and are otherwise self-employed, the challenges remain sizable.
To obtain a mortgage as a self-employed person, your proof of income must extend backwards at least two years, show signs of continuity moving forward, and of course, be enough to qualify for the loan. Because many self-employed people tend to write-off income as business expenses to avoid taxes, that often results in an income that may be too low to qualify.
What steps do home shoppers need to take?
There are three basic steps, regardless of the amount of money you are looking to borrow.
- Get your debt in line and if possible, much lower than the lender requires. You are about to amass an enormous amount of debt in the process of getting a mortgage, so the exercise will be good preparation.
- Begin the process two to three years before you actually begin shopping. The assets that lenders of jumbo mortgages require are also a good rule of thumb for conventional borrowers as well. When these lenders request liquid assets, they are referring to savings, retirement accounts, and anything that can be sold with relative ease. Property for instance, does not apply. These accounts need to show some “seasoning.” In other words, quickly propping up accounts will not pass muster with most lenders.
- Get pre-approved. This will give you and your realtor something to work with.
How may we assist you?
On behalf of The Jones Group @ Sunriver Realty
Nola Horton-Jones, Principal Broker/Realtor | ABR, C-RIS, e-PRO, GREEN, RSPS, CCIM Candidate
Bryce Jones, Broker/Realtor | ABR, CRS, e-PRO, GREEN, GRI, RSPS, SFR
Karen Marcy, Broker/Realtor
The Jones Group @ Sunriver Realty | 57057 Beaver Drive | Sunriver, OR 97707
Mobile: 541-420-3725 | Mobile: 541-420-4018 | Mobile: 503-327-9611 | Fax: 541-593-5123
Licensed in Oregon