Los Angeles is one of the most expensive places to buy real estate in. According to Zillow.com, the average price of a home today in this city is $752,508, with a five percent increase from the previous year. That is slightly higher than the loan limits set by federal housing authorities (FHA) on conforming loans.
FHA loans are types of loans that have a cap on how much a borrower can mortgage. That is because they are insured by government-sponsored entities from loss or default. These loans allow first-time borrowers or those with good-but-not-great credit scores to access funds to purchase a home.
Purchasing property in California, particularly in one of the more expensive counties like Los Angeles, may mean you have to apply for a jumbo mortgage. A jumbo-sized loan will allow you to borrow amounts beyond the federally insured limits. It is a type of financing that requires borrowers to go through a more rigorous application process because it involves a lot more risk on the part of the lender.
Who Qualifies for Jumbo Loans?
Jumbo mortgages are good options for those who have stronger credit scores and more cash reserves but don’t have the full payment yet for the cost of a higher-than-average property.
People who have significant savings and are looking to invest in a promising housing market like Los Angeles will benefit from jumbo loans. If you’ve been diligently maintaining a high credit score, investing your cash wisely, and have a little outstanding debt, it will be easy for you to qualify for a non-conforming jumbo loan.
When is the Right Time for a Jumbo Mortgage?
As with any investment, you’ll need to assess your risks and potential rewards. Real estate in Los Angeles is expensive, the average home price according to Zillow is $752,508, but because home prices have been steadily rising in recent years, it makes for an attractive investment opportunity. The higher-end niche of the housing market has earned investors substantial returns. The high potential return can be a good reason to take bigger risks.
Shannon Christenot explains, “The higher the loan amount, the bigger the possibility of default, which is why you want to make sure that you carefully study the investment against the terms of your financing. Scrutinize the property and its future earning potential. Look for features that will contribute to the appreciation in its value over time, such as a prime location, premium quality construction materials, an exclusive community, and plans for developments in the surrounding area.”
With that, consult an experienced and capable mortgage broker when you feel you have found the right property. They can first assess your qualifications for a non-conforming loan. They can also help you find the best rates and deals from a bank or private lender for a jumbo loan to finance your plan.
Costs of a Jumbo Loan
Jumbo loans will require you to make a bigger down payment—typically 20 percent—than an FHA or a conforming loan that is typically around 3.5 percent. Depending on the available deals your mortgage broker can bring you, you can secure a loan with as little as 10 percent down payment.
Interest rates are also usually higher than those for conforming loans. Brokers can help you negotiate more reasonable rates by working out a slightly higher down payment, or by leveraging their network of lenders. Be prepared to also pay for additional fees and closing costs related to your jumbo loan application.
Shannon Christenot for Jumbo Loans in Los Angeles
There are many ways to finance the expensive property you’ve been eyeing. A jumbo loan is a great avenue to access funding, especially if you have maintained a healthy cash position and a higher-than-average credit score.