How To Avoid Jumbo Loan
Avoiding a jumbo loan means steering clear of borrowing amounts that exceed the conforming loan limits set by government-backed entities like Fannie Mae and Freddie Mac. Jumbo loans typically come with higher interest rates, stricter requirements, and bigger down payments.
Here’s how to avoid getting a jumbo loan:
How To Avoid a Jumbo Loan
1. Know Your Local Conforming Loan Limits
- Each area has a maximum conforming loan limit (usually $726,200 for most US counties in 2024, but higher in expensive areas).
- Stay within this limit to qualify for conventional loans with better terms.
2. Buy a Less Expensive Property
- Consider homes priced below the jumbo loan threshold.
- Adjust your expectations or look for properties in more affordable neighborhoods.
3. Increase Your Down Payment
- Put down a larger amount to reduce the loan size.
- For example, if the home price is high, a bigger down payment can keep the mortgage under the jumbo loan limit.
4. Consider a Piggyback Loan
- Use a second mortgage (like an 80/10/10 loan) to avoid a single jumbo loan.
- The first mortgage stays within conforming limits, and the second covers the remainder.
5. Shop for Special Loan Programs
- Some lenders offer jumbo-friendly loans with better rates or programs.
- Or look for government-backed loans (FHA, VA) with limits you can meet.
6. Work With a Mortgage Broker
- They can help find lenders or programs suited to your financial situation that avoid jumbo loans.
Why Avoid Jumbo Loans?
Reason | Explanation |
---|---|
Higher Interest Rates | Jumbo loans usually have higher rates than conforming loans. |
Stricter Qualification | More stringent credit score and income requirements. |
Larger Down Payment | Often 20% or more down required. |
Less Flexible Terms | Less options for refinancing or loan modifications. |