How to Avoid Paying Jumbo Mortgage Rates

Take advantage of lower mortgage interest rates.

Mortgages backed by government agencies such as Fannie Mae are considered conforming mortgages. These mortgages, however, have a maximum loan amount. When a mortgage amount exceeds the maximum amount, it is referred to as a non-conforming or jumbo mortgage. In addition to the loan amounts, jumbo mortgages may also be the only options for borrowers who do not meet the stringent guidelines imposed by conforming mortgage lenders, such as meeting certain credit scores and income-to-debt ratios. Jumbo mortgages tend to come with higher mortgage rates so many borrowers wish to stick with conforming mortgages when possible.

Instructions

1. Make a bigger down payment. In general, as of 2010, the maximum loan amount for a Fannie Mae mortgage is $417,000. The first way to ensure that you avoid jumbo mortgage rates is to make sure that your loan amount meets conforming mortgage limits, which you can accomplish by making a larger down payment on the purchase of a home or paying down the loan balance for a refinance.

2. Increase your credit score. Another factor that plays into qualifying for a conforming mortgage and avoiding jumbo mortgage rates is to make sure that your credit score is high enough to qualify for a conforming mortgage. For Fannie Mae, a credit score of 740 is excellent, so pull your credit report and make sure that everything is in order and that your credit score is above 700. If it isn't, work out arrangements with creditors and correct inaccurate and potentially negative items showing on your credit report.

3. Get a piggyback mortgage. Another way to avoid paying jumbo mortgage rates without having to come up with a larger down payment is to use a piggyback mortgage, where your first mortgage is below the conforming mortgage limit and a second mortgage is established at the same time as the first to make up the difference. This allows you to take advantage of the lower conforming mortgage interest rates on the first mortgage and pay standard second mortgage rates on the second mortgage.

References

• CNBC: How to Avoid a Jumbo Mortgage (And Its Jumbo Rate)

Resources

• Fannie Mae: Loan Maximums