There is a variety of mortgage options, such as a fixed or variable rate, and each comes with varying terms, such as 15 or 30 years. While a 30 year fixed rate is the most popular option, you need to find the best option for you.
Living in New York City, you need to be mindful of one more thing: whether you need a jumbo or qualify for a conventional mortgage. The choice will be made for you based on the size of your loan, but a jumbo mortgage is not as daunting as it sounds.
Why you need to know
In high-cost areas, which NYC certainly qualifies, the maximum borrowing amount for a conforming loan $636,150. Fannie Mae or Freddie Mac will purchase this maximum loan amount. If your mortgage is more than $636,150, you need to apply for a jumbo mortgage.
Although the maximum conforming loan limit was recently increased by the Federal Housing Finance Agency (the first time in about a decade) from $625,500, the median price in Manhattan was $1.2 million in the second quarter, more than 7% higher than a year ago, according to an Elliman study.
This means, when shopping for an apartment, you may very well need a jumbo mortgage.
The lender may scrutinize your loan application more carefully, applying stricter standards (e.g. lower percentage of mortgage payment compared to monthly income). A higher loan amount means many lenders require a larger down payment. Instead of the standard 10%, you may need to pony up 15%-30% of the purchase price. Lenders may also require a higher credit score than for a conforming mortgage.
This compares to high-flying days of the prior decade when lending standards were relaxed for all loans, including jumbo mortgages. Lenders even granted loans to borrowers without verifying income. Those days are long gone, so be prepared to provide documentation, including for income, assets, and any property owned.
Is the rate higher?
The answer is pleasantly surprising for those that are applying for a jumbo mortgage. These days, the rate is actually lower. The 30 year fixed jumbo mortgage rate in the New York City area was 3.95%, versus 4.12% for a conventional fixed rate, 30-year mortgage, according to a recent Bankrate survey. Historically, the jumbo rate has been about 0.25% higher.
The stricter standards have made lenders more comfortable with the larger loans. Lenders have increased confidence regarding repayment since these borrowers have better metrics than those for a typical mortgage, lenders. Others have also credited banks’ hope to attract a wealthier clientele in order to cross-sell other services. In any case, this is good news for large borrowers.
You should not feel anxious when you hear you need a jumbo mortgage. The lending standards may be stricter, but proper planning should ensure that you have the resources to obtain a mortgage for the higher amount, and the process is similar.
Moreover, in the current climate, lenders are anxious to gain the business for jumbo mortgages. This means rates are likely to stay competitive for the near future. Nonetheless, it pays to shop around to obtain the best deal. As with all mortgages, remember it is not just about the lowest rate, but examine the fees, too.