Money Geek: Pros & Cons of Jumbo Loans

Some of the pros of jumbo loans include:

• More flexible lending terms: Jumbo loans are not subject to the same guidelines as conforming loans, which means the borrower may be able to secure more flexible terms

• Competitive interest rates: Despite being larger loans, jumbo loans often have more competitive interest rates, allowing borrowers to secure more favorable terms

• Greater borrowing power: Jumbo loans allow qualified borrowers to secure more capital to purchase larger, more expensive homes

• No Private Mortgage Insurance (PMI) required: Unlike conforming loans, jumbo loans do not require borrowers to pay Private Mortgage Insurance (PMI) if they make a down payment of less than 20%. This can save the borrowers thousands of dollars over the life of the loan, as PMI would add hundreds to each monthly mortgage payment

Some of the cons of jumbo loans include:

• Higher down payments: Jumbo loans typically require larger down payments than conforming loans. Borrowers will often need to show cash reserves after closing to qualify.

• Stricter credit requirements: Jumbo loans often require higher credit scores and lower debt-to-income ratios than conforming loans. This can make it more difficult for some borrowers to qualify

• Higher closing costs: Jumbo loans typically have higher closing costs than conforming loans. They are often involving more paperwork and complex underwriting and may require multiple appraisals. Other costs are based on percentages of the loan amount, which would also be higher than conforming loans. These costs add up quickly and require borrowers to bring additional cash to closing