Jumbo loan rates often top rates for any other loan simply because of the amount you borrow. It makes sense that a $600,000 loan would cost more than a $200,000 loan, right? Just because rates might be higher does not mean you have to settle, though. There are distinct ways to secure lower rates on your jumbo loan.
Increase your Down Payment
The most straightforward way to decrease your interest rate is to put more money down on the home. Lenders look at the LTV as one of the main factors when they consider your interest rate. An LTV of 95% versus an LTV of 80% poses a much different risk level. Lenders want you to have “skin in the game.” This means they want you to have as much of an investment in the home as possible. This is because they want to make sure you will make your payments in the future. Think about it; if you put down $5,000 on a home or you put $50,000 down on a home, which would you be more willing to work hard to avoid losing? The $50,000 would definitely make you work harder.
Increasing your down payment does not occur overnight, though. It requires plenty of planning. If you know you wish to purchase an expensive home, meaning one over $417,000, you should start saving for the down payment as early as possible in order to have a sizeable down payment.
Increase your Credit Score
Almost as important as the LTV is your credit score when it pertains to your interest rate on a jumbo loan. Lenders want borrowers that have a clean credit history, which means a high credit score. Think of scores over 740 when you think of “high” scores. This does not mean that lower credit scores cannot secure a jumbo loan, but they will pay the price with a higher interest rate.
You can start increasing your credit score at any time; the best time to do so is before you apply for a mortgage. A few strategies include:
- Pay down any large amounts of revolving debt. Lenders do not like to see more than 30% of any credit line used at one time.
- Make all payments on time for at least 12 months.
- Pay off any debts that you can feasibly pay off.
- Eliminate any collections or judgments from your credit.
Repairing your credit score takes time, so do not think you can do this 3 months before you apply for a jumbo loan and have great results. It can take months or even years to perfect your credit score, so the earlier you start the better off you are.
Choose an Adjustable Rate
It might not be the ideal situation, but an adjustable rate loan is a great way to keep your interest rate down. If you were not able to fix your credit or save a large down payment, you can opt for the adjustable rate, which provides you with a lower introductory rate for the first few years. The low introductory rate will adjust in the future, however, so you have to plan accordingly. Many people use those first few years to get their credit fixed or to pay down more of the principal of the loan so that they can secure a lower fixed interest rate before the adjustable rate changes. The typical time period for the introduction rate is between 3 and 5 years, giving you sufficient time to get things in order.
Pay a Discount Fee for the Best Jumbo Loan Rates
You might not want to think about paying more fees for your loan, but if it means securing a lower interest rate, it might be worth it. Talk to your lender about the option to pay discount points. Every lender provides a different discount for each point you pay, so ask various lenders what they will offer you. Typically, one point equals 0.25% on the loan, but every lender differs in what they offer.
Securing the best jumbo loan rates is not hard, but it does require time. Figure out what you need to do in order to get your credit in order and your down payment as high as possible as early as you can. The more you plan, the better off you will be in the long run, giving you the lowest interest possible on your jumbo loan.