If you've ever pieced together a jigsaw puzzle of the 50 United States, or memorized their capitals, what do you make of the above image? It's a map of the constituent counties of the U.S., and it looks like an area that should be swept and vacuumed rather than studied and interpreted.
If you're a potential home buyer, though, you may just be interested to know that mortgages vary from county to county. For example, the mortgage for an average home in Maryland probably still surpasses the mortgage for a ritzier home in Montana.
Just like most homeowners know where their house is at any given time, many people who want to buy houses know where they want to live. To narrow things down even further, the overwhelming majority of readers of this article will want a friendlier mortgage on their future home.
Thankfully, there are only two main types of mortgages: jumbo and conventional mortgages.
Jumbo Mortgage vs. Conventional Mortgages
The term "jumbo" mortgage refers mainly to the fact that a house purchased using one such mortgage requires a larger overall financial commitment — more money.
In fact, a jumbo mortgage, or portfolio mortgage, is its own category only in contrast to guidelines set forth by Fannie Mae and Freddie Mac.
These guidelines, which update yearly, put forth $726,525 as the total maximum value for a conventional loan for a one-unit property in 2019. That national maximum applies only to those counties designated for higher maximums than the standard national maximum, which is $484,350.
What follows is a breakdown of other specific ways in which jumbo/portfolio mortgages compare and contrast to those guidelines which rigidly define conventional mortgages.
Fair warning: lenders in pursuit of a jumbo/portfolio mortgage may seem to have dollar signs in their pupils, especially if you meet their loan criteria. Metrics including but not limited to proof of income, liquid assets, credit score, and the debt-to-income ratio will be the deciding factors as to whether you meet criteria for this or that jumbo loan. The particulars likely will vary widely from lender to lender.
In direct contrast, borrowers seeking a conventional mortgage need be concerned only with their credit scores, debt-to-income ratios, and their mortgage's loan-to-value ratio.
Down payments and interest rates
Even though jumbo/portfolio mortgages cost more than conventional mortgages, factors like down payment and interest rate may not differ much when lenders are mixed and matched.
For instance, one lender may offer a jumbo mortgage with 2.5% interest rate and a 15% down payment, whereas a conventional mortgage may set you back a 3% interest rate and only a 10% down payment—good news for those looking to shop around and save on initial investment (be advised, however, that all money taken out on any mortgage eventually must be paid back).
As with jumbo mortgages, the insurance rates for conventional mortgages vary depending on down payment and interest rates. Mortgage insurance currently is mandated on conventional loans where the borrower's loan-to-value ratio is less than 20%. Again, the more money you put down up front, the less you likely will have to pay through interest and insurance rates.
Taxes are an important variable in the mortgage game: the federal government caps tax deductibles at mortgages totaling $1 million. In other words, if you buy a house for a jumbo mortgage that amounts more than $1 million, you effectively lose out on tax deductions exceeding that threshold. Buyer beware!
The overarching concern of taxes can be thought of as built from the bricks of tax law. In a jumbo mortgage, each individual brick may be red or black with regards to the bottom line. In most any case, you would do well to consult a tax attorney before taking out a jumbo loan.
Connect with an Agent
If you're thinking about buying a home, chances are you've already considered factors like how much it may cost and how to finance it. And it stands to reason that a buyer who connects with an agent is more likely to follow through on his or her desire to own a home.
A great local Clever Partner agent can advise you on everything from (1) what sort of mortgage makes sense, to (2) which outfit to wear a showing, to infinitely more important variables like (3) how to get Home Buyer Rebates and other would-be hidden cost-savings. T
That's money back in your pocket that can be applied to down payments, mortgage payments, repairs or renovations, moving, and more.