Michigan Homebuyers: Conventional vs Jumbo Loan

As Michigan real estate prices continue to rise, buyers may find themselves in a situation where the price of the house they want is well above the conforming loan limits for conventional loans.

There’s no doubt that conventional loans are one of the more popular and common loan types buyers apply for these days but what if you need a loan amount that exceeds conventional loan limits?

A jumbo mortgage in Michigan may be your best option.

Don’t give up on buying that expensive home just yet, a jumbo loan is a good choice if you need to go above and beyond what conventional mortgages can’t cover.

Let’s take a look at how jumbo loans work and how they differ from conventional loans.

What’s the difference between a conventional loan and a jumbo loan?

When you understand loan limits, you can make an informed decision on whether you need a jumbo loan or not.

If you are buying large luxury homes in a competitive market in Michigan, a jumbo loan can help you fund your purchase. Jumbo loans offer financing that’s over the limits set by the Federal Housing Finance Agency for conventional loans purchased by Fannie Mae and Freddie Mac.

Have you ever heard the term non-conforming loans? This is another term used for jumbo loans since they go over the limits set for conforming mortgages.

Conforming loan limits are ceilings placed on mortgages that Freddie Mac or Fannie Mae can guarantee.

In 2022, here are the conforming loan limits for one-unit properties $647,200 in most areas in America, and $970,800 in most high-cost areas in the U.S.

If you want to get the upper hand when making offers, pre-approved for a home loan in Michigan.

What are the requirement differences between jumbo loans and conventional loans?

The application process for jumbo loans and conventional loans are the same but the requirements are more stringent due to the more significant loan amounts involved that put lenders at a higher risk. 

For jumbo loans, your assets, income, and credit scores will be reviewed and submission of more documents will be required compared to conventional loan applications. 

Here are loan requirement comparisons in different categories:

• Credit Score: For conventional loans, a minimum credit score of 620 may suffice but for a jumbo loan a score of 680 or higher gives you a better chance of getting approved. If your scores are lower, you may still get the loan but at a higher interest rate.

• Down Payment: You can get a conventional loan with as low as a 3% down payment as long as you pay for PMI or private mortgage insurance. If you buy a single-family home, you must prepare more than 10% for a jumbo loan. Down payment requirements will vary based on your loan amount, property type, and credit score.

• Income: Jumbo loans involve larger loan amounts which means you need to show that you earn more money. Income should also be stable and predictable.

• Cash Reserves: Conventional loans require at least 6 months of cash reserves while jumbo loans can go up to 12 months worth of cash reserves.

• DTI: A DTI of 50% or less would get you approved for a conventional loan, with a jumbo loan you should have a DTI of 45% or lower. 

Have you tried a Michigan mortgage calculator yet? It’s an amazing tool that lets you know how much home you can afford and your monthly mortgage payments as well.

When does choosing a jumbo loan make sense?

• You want to buy in a competitive and high-cost location

• You want to buy an expensive luxury or vacation home 

• You have high and stable income sources

• You have excellent credit scores

Borrowers who apply for jumbo loans don’t just buy primary homes, they use the loan to purchase investment homes and vacation homes. 

If you want to buy a home in Michigan with a jumbo loan, reach out to get the best deals available.

Are you ready to buy your dream home in Michigan?

Don’t let the high selling price of your Michigan dream home prevent you from moving forward. A jumbo home loan by Reliance Financial Group can take the place of a conventional loan if you need a larger amount for your luxury home.

We understand that everyone’s needs are unique. Our loan officers can help you pick the right loan option that fits your specific requirements.

Give us a call or send us a message on our website for a free consultation.

 

* Specific loan program availability and requirements may vary. Please get in touch with your mortgage advisor for more information.