Financing a home purchase requires that you meet many different criteria. However, given how high the average property value is in New York, a mortgage is often the only way to buy a house.
You may not be able to purchase the house of your dreams with a standard mortgage. The more expensive the house is, the more likely it is that you will need special financing to buy it. Most homeowners buy properties with mortgages that adhere to the standards set by the Federal Housing Finance Agency (FHFA). These conventional mortgages offer a line of revenue to banks because they can sell the mortgage to other lenders or have the mortgage guaranteed by Fannie Mae or Freddie Mac.
If your new home costs more than 150% of the conforming loan limits set by the FHFA, you will have to apply for a jumbo loan or jumbo mortgage. What does that mean for you as a buyer?
Jumbo loans often come with stricter requirements
It can be more difficult to qualify for a jumbo loan even if you live in an area with exceptionally high property values and earn a competitive wage. Lenders will look very closely at your income and your debt to income ratio.
Beyond that, you will also need to show that you have assets set aside to help cover your mortgage expenses. Having savings or other assets in the bank will substantially increase your chances of approval for a jumbo loan.
A jumbo loan means more interest and bigger payments
As you can probably imagine, a mortgage for a property that is worth more than $700,000 will have very high monthly payments. In addition to carrying a higher principal balance, a jumbo loan will also usually have a higher interest rate than the best rates available to people who secured conventional mortgages.
The lender has to take on more risk for these large transactions and won’t necessarily be able to sell the mortgage to another institution in the future. While a jumbo mortgage does often mean a higher standard to qualify and a few more complications as you make your way to closing, it may be the only way to fund the purchase of your next home.
Learning more about high-value real estate transactions in New York can help you better protect yourself during what may be the biggest purchase of your life.