4 Benefits of Jumbo Loans

Jumbo loans are those loans that are over the Fannie Mae or Freddy Mac cap for the highest mortgage available to consumers. These caps are set each January based on average market prices. Jumbo loans are highly risky because they have high interest rates, can take a longer time to pay off and may leave you owing more than you can afford. However, if you are ready for the risk and the challenge, a jumbo loan will offer benefits beyond a standard home mortgage. 

#1: Home Prices are High in Your Area

Residents in some areas will not have options outside of jumbo loans. For example, the average home price in some areas of New York City can top $900,000. Unless you have over half a million dollars saved for a down payment, a jumbo loan will be the only option to be a home owner. The same is true in cities across the country where competitive markets drive up the cost of home ownership. It is one thing to elect to live in an expensive area, but in cities like New York, San Francisco and Los Angeles, simply owning a home of any type costs a huge portion of money.

#2: You have a High Salary but Low Down Payment

Many young families have not yet had time to save a substantial down payment. These families or individuals, however, may have salaries well into the six-figures. In this case, they can realistically afford $3,000 to $5,000 per month in mortgage payments to own a home of higher value. However, with a low down payment, these homes may not be available. A jumbo loan allows this type of individual to purchase a high value home with a small amount of cash up front. 

#3: You are Buying for the Future

Many families purchase their homes with the intention of staying there for 15 or 20 years. If this is the case, they need a home they can grow into and be happy with as their financial situation changes in the future. Starter homes that only last a few years are not in the plans for every home buyer. If you are looking for a home you can grow into, a jumbo loan may be able to get you into that forever home now instead of 5 or 10 years down the line. 

#4: Rapidly Build your Credit

The rate of default on jumbo loans is traditionally higher than that on more modest mortgages. However, if you are one of the people who can pay off the mortgage on time with discipline and good financial practices, your credit score will reflect this. Paying off a huge mortgage will cause your credit score to skyrocket to levels unachievable by other means. It is not uncommon to achieve a credit score of over 800 if you can pay off one or more large mortgage loans. This score will get you great financing at low rates for both personal and business endeavors in the future.