If you are looking to buy a house, you are going to need a mortgage. Mortgages allow you to afford big-ticket purchases even if you don’t have enough money to pay for the sum at present. When you apply for a loan, the lender will review your income, debts, and credit score to determine your mortgage eligibility. The better your financial position, the more money you may be qualified to borrow.
How much money you borrow will depend on the price of the house you have in mind. According to Zillow.com, the median price for a home in Phoenix, Arizona in 2020 is around $270,000. For this price tag, you will be able to afford a 190-200 square-foot house. Bigger houses may cost more, and the higher price tag will determine the type of loan you will need.
Conventional Loans vs Jumbo Loans
There are various loan options available, but two of the most common are conventional and jumbo loans. Government entities like Fannie Mae and Freddie Mac secure Federal Housing Authority (FHA) or conventional loans against default, reducing the risk for lenders. The insurance allows them to lend money to people who don’t have a lot of money for equity and little to no credit history. The amount you can borrow on a conventional loan is limited. These limits vary based on the area’s property prices. In Arizona, the limit on a conventional loan is $510,400 as of this year.
If you consider a property that costs more than this limit, you may need a jumbo loan. Non-conforming or jumbo loans offer access to funding that is beyond the conventional limits. The federal government does not insure them, which makes them riskier. For this reason, they have stricter application requirements and usually necessitate a bigger down payment.
Is a Jumbo Loan Right for Me?
Jumbo loans are a way to finance larger properties or homes that are in highly competitive markets. Because it involves higher risk, you will need to prepare cash for at least 10 to 20% of the property value for the down payment to get a loan, whereas conventional loans only need about 3.5%.
You can qualify for the jumbo loan if you have sufficient money for the equity, enough borrowing capacity, and an excellent credit score. Having plenty of savings isn’t just prudent; it also increases your chances to be approved. Loan officers will assess your borrowing capacity by deducting your expenses from your income to determine how much you have left for monthly mortgage payments. They will also take into account your credit scores since jumbo loans involve greater risk. Some lenders will require a FICO score of 700 to 720 to get approved.
Do I Need a Jumbo Loan?
If a jumbo loan is under consideration, take into account the value of the property you are buying. Is the higher price tag worth it because of location, construction quality, and amenities? A bigger house will also equate to higher living expenses for utilities, maintenance, and taxes.
If you are buying the property for investment, consider factors that could increase the property’s value over time, such as the potential for expansion or future developments in the neighborhood.
Desert Springs Mortgage for Jumbo Loans in Phoenix
You should consult a local mortgage broker who can advise you on the loan application process to understand the risks involved. An experienced broker can give you insight into property values to determine if you are buying the right property. They can also help you arrange your finances to qualify for loans.
When you decide on a loan, make sure to scrutinize the property and not just the mortgage terms. Jumbo loans are a bigger risk than conventional ones for both the borrower and the lender. However, if you have a healthy financial position, it may be worth considering.
Are you looking to buy a house in Phoenix and need a jumbo loan for it? We are a full-service mortgage brokerage that can assist you with any type of financing options to suit your needs. Visit our website or call us today at (623) 432-1309 for more information!