second home

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For many individuals and families, owning a home is a lifelong dream. However, with rising real estate prices, some may find themselves seeking financing beyond the conforming loan limit. This is where jumbo loans come into play.

What is a jumbo loan?

What exactly is a jumbo loan in Alabama? A jumbo loan is a specialized type of mortgage that comes into play when you’re seeking financing for a home that surpasses the conforming loan limits (CLL) established by the Federal Housing Finance Agency (FHFA). Typically, this type of loan is necessary for upscale, luxurious properties or those situated in pricey housing markets.

If the loan amount needed to buy the home is more than the conforming loan limit, you’ll need a jumbo loan. But because of the larger loan amounts and increased risk for lenders, Alabama jumbo loans often come with higher interest rates and stricter requirements than conventional loans. For instance, a larger down payment and a higher credit score may be required to qualify for a jumbo loan.

What is the jumbo loan limit in Alabama?

In Alabama, the conforming loan limit is $726,200 across all counties. For example, if you’re buying a home in Jefferson County, where the median sale price is $290,000, a loan limit exceeding $726,200 would be considered a jumbo mortgage.

As a reminder, the loan amount is what determines whether or not you’ll need a jumbo loan, not the price of the home you’re buying. So, if you were to put $100,000 down on a $780,000 home in Birmingham, the loan would be $680,000, which is under the conforming loan limit for this area. In this case, your loan wouldn’t be considered a jumbo loan.

Additional information regarding the conforming loan limits in Alabama can be found here.

What are the requirements for a jumbo loan in Alabama?

The requirements to qualify for a jumbo loan are more stringent than the requirements for a conforming loan. The specific requirements can vary from lender to lender, but below are the typical requirements for borrowers seeking a jumbo loan in Alabama.

Higher credit score: To qualify for a jumbo mortgage, borrowers typically need to have a credit score of at least 720. However, some lenders may be willing to accept scores as low as 660, although less frequently. A higher credit score demonstrates a borrower’s ability to manage credit responsibly and is an important factor that lenders evaluate when considering jumbo loan applications.

Larger down payment: Buying a high-priced home usually requires a larger down payment from the buyer. Conventional loans may offer programs for down payments as low as 3%- 5%, but non-conforming loans require a minimum down payment of 10%, with some lenders requiring up to 30%. If the homebuyer puts down less than 20%, they will likely need to pay for private mortgage insurance (PMI).

More assets: Jumbo loan borrowers are typically required to have additional assets. In particular, lenders may require borrowers to demonstrate sufficient liquid assets or savings to cover one year’s worth of loan payments.

Lower debt-to-income ratio (DTI): A mortgage lender will look at a borrower’s DTI (debt-to-income ratio) to assess their creditworthiness and spending habits. For a conforming loan, a DTI as high as 50% may be acceptable to some lenders. However, jumbo loan borrowers are required to have a lower DTI, ideally under 43% and closer to 36%. This is because jumbo loans are riskier for lenders due to the larger loan amounts. Applicants with a higher DTI may still qualify for a jumbo loan, but it could result in a higher interest rate or a stricter approval process.

Additional home appraisals: A mortgage lender may require a second home appraisal for a jumbo loan, in addition to the standard appraisal, to get another opinion on the property’s value. This is especially true in places with limited comparable property sales. The second appraisal helps lenders ensure that they are providing funds for a property that is worth the loan amount or more.

Source: redfin.com

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One of the larger and oldest credit unions in the nation, Navy Federal FCU, happens to be a big player in the home loan space.

Instead of just offering the same mortgages every other bank has readily available, they go a step further with their own unique offerings.

This includes a zero down loan option, conforming and jumbo loans, and even an interest-only option if you’ve got some home equity.

Let’s learn more about this company to see if they’re the right fit for your home loan needs.

The one caveat with Navy Federal is that not everyone is eligible for a membership.

You or a family member must have some affiliation with the Armed Forces, DoD, Coast Guard or National Guard.

The good news is that’s a lot of people because Navy Federal has over eight million members nationwide, up from just seven (7 people) when they began all the way back in 1933.

Navy Federal Home Loan Options

  • They offer conforming, government, and jumbo loans
  • Including home purchase, refinance, and home equity loans
  • In both fixed and adjustable-rate varieties
  • For primary, 2nd homes, and investment properties

The company offers a wide variety of mortgage loan programs, including typical fixed-rate offerings like the 30-year fixed and 15-year fixed, along with a number of different adjustable-rate mortgages.

They actually don’t offer common fixed-rate loan programs like the 10-year and 20-year fixed, but do allow homeowners to amortize their loan over terms between 10-30 years.

For example, you could choose a 13-year term, but you’d be subject to 15-year fixed pricing. Or you could choose a 22-year term and be subject to 30-year fixed pricing.

When it comes to ARMs, they have lots of them, including:

  • 3/1 ARM
  • 5/1 ARM
  • 2/2 ARM
  • 3/5 ARM
  • 5/5 ARM
  • 7/1 ARM
  • 10/1 ARM

You can get all these ARMs in jumbo loan amounts too other than the 2/2 ARM.

The more unusual of the bunch include the 2/2 ARM, 3/5 ARM, and the 5/5 ARM, while the others are more run-of-the-mill.

They’ve got conventional loan products along with government loans including FHA loans and VA loans. I don’t think they offer USDA loans.

Anyway, that means veterans and active duty can get zero down financing, and others can do the same via their  loan program.

Navy Federal’s zero down home loan program, which appears to be a VA loan, is known as “100% Financing HomeBuyers Choice.”

So the typical VA guidelines likely apply, including a funding fee and max loan amounts by county and entitlement.

The good news is they will allow up to $1 million loan amounts in certain areas, and seller contributions of up to 6%.

It only comes in a 15-year or 30-year fixed – no ARMs are available.

Like most other mortgage lenders, they offer home purchase loans, rate and term refinances, and cash out refinances.

Navy Federal also has four different types of home equity loans/lines available if you want to tap into your available home equity without disrupting your first mortgage.

They also offer interest-only financing with a minimum down payment of 20%, but do not advertise those mortgage rates on their website.

Aside from providing mortgages on primary residences, they also have options for those financing a second home or an investment property.

For second homes, you have the option of a 30-year or 15-year fixed, with investment properties limited to 15-year fixed mortgages.

Finally, Navy Federal gives you the option to avoid private mortgage insurance or pay upfront mortgage insurance, assuming it’s required on your loan (generally when putting down less than 20%).

Navy Federal Mortgage Rates

  • They advertise most of their mortgage rates on their website
  • Including discount points needed to obtain the associated rate
  • Rates appear to be very competitive/lower than the competition
  • Especially their ARM rates

I always appreciate a lender that openly advertises its mortgage interest rates, and Navy Federal checks that box.

You can always find their daily mortgage rates on their website for most of their home loan products, including any discount points that must be paid to acquire said rate.

They seem to have competitive fixed rates and really low ARM rates, so if you’re looking at an ARM, consider Navy Federal.

Just note that they tend to charge a 1% loan origination fee on all their products.

Of course, you can and should always negotiate regardless of what they’ve got posted on their website.

They appear to offer a free biweekly mortgage payment option, but they also note in the fine print if you choose to do that, it remains the payment arrangement for life.

In other words, you better make sure you want to make larger-than-necessary monthly payments until you sell your home or refinance your mortgage.

The company also recently launched its No-Refi Rate Drop, which allows you to lower your rate in the future for just $250 after signing a single document, assuming mortgage rates come down.

Navy Federal Mortgage Rate Match

  • Navy Federal appears to be confident that they offer some of the lowest rates around
  • That’s why they offer a $1,000 rate match guarantee
  • If you find a lower mortgage rate and Navy Federal is unable to match it they may compensate you
  • But you have to prove it with documentation and jump through some  hoops to qualify

One neat perk the company offers is its so-called “Mortgage Rate Match,” which as the name implies will match the interest rate of a competitor.

So if you’re able to find a lower mortgage rate while comparison shopping, Navy Federal will match that rate or give you $1,000.

Of course, the typical restrictions apply and you’ll need to lock your rate with Navy Federal before submitting the rate match request.

Additionally, you’ll need to provide a Loan Estimate from a competing lender within three calendar days of locking your rate, and the terms have to be identical.

In other words, there are probably a lot of outs for Navy Federal, but if you’re able to muster all that and they can’t/won’t go any lower, you might be able to snag $1,000.

Speaking of locks, Navy Federal also offers a “Freedom Lock Option” for home purchase loans that lets you lower your rate up to 0.25% if rates improve up to 14 days prior to closing.

It’s basically a free one-time re-lock option offered on all loan types.

Navy Federal HomeSquad

In mid-2019, they launched “HomeSquad,” which is essentially their take on the digital mortgage that has been becoming more and more mainstream with mortgage lenders these days.

It allows borrowers to generate a quick pre-approval and to check loan status 24/7 via their mobile phone once they are approved.

During the loan process, borrowers can upload key loan documents like pay stubs, tax returns, letters of explanation, and so on.

You can also connect bank accounts for automated asset verification, and notices are sent straight to your preferred device as milestones are met.

This technology better aligns them with the likes of Quicken Loan’s Rocket Mortgage, and makes them really hard to beat given their low rates and quality customer service.

Why Choose Navy Federal for Your Mortgage?

  • Competitive mortgage rates
  • Free re-lock option if rates fall after you lock
  • Biweekly mortgage payment option
  • They service your home loan for life

Aside from the many perks and options mentioned, their home loan products are available nationwide.

So as long as you’re eligible for a Navy Federal membership, they’re probably worth at least checking out no matter where you are in the country.

Assuming their interest rate and lender fees are competitive, they offer a few more advantages to borrowers.

They claim to offer personal guidance from start to finish, so ideally their loan officers are top-notch relative to other big bank officers.

Additionally, once your loan funds, they’ll actually hang onto it for the life of your loan. That means Navy Federal is not only your lender, but also your loan servicer.

This can be convenient and less confusing as many lenders simply originate home loans and quickly sell them off to a differ ent entity, creating more paperwork and potential headaches.

Knowing your loan will stay with the company may also lead to a more transparent and friendly experience.

With Navy Federal, you can rest assured that you’ll be a borrower for life with them, so they’ll probably want to take good care of you along the way.

(photo: Dave Lawler)

Source: thetruthaboutmortgage.com

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More mortgage Q&A: “Are mortgage points tax deductible?”

Mortgage points, sometimes known as loan origination fees or discount points, can be tax deductible if certain conditions put forth by the IRS are met.

Can You Deduct Mortgage Points In Full or Over Time?

  • You have to meet a series of “tests” from the IRS
  • In order to deduct your mortgage points in full
  • For the tax year you paid them
  • Otherwise the deduction needs to be amortized over the life of the loan

Generally, you cannot deduct the full amount of mortgage points in the year paid, as they are considered prepaid interest and must be deducted equally through the life of the loan.

For example, if you paid $5,000 in points on a 30-year fixed loan, you’d generally have to amortize the tax break over 360 months.

That works out to roughly $167 per year, or $13.89 per month, and probably isn’t enough to get excited about. And you need to itemize to take advantage of the tax break.

Fortunately, there are exceptions to deduct all the points in the tax year paid so you can potentially get a bigger refund or lower tax liability.

Let’s discuss what needs to happen in order to deduct the full amount of points paid in a single tax year.

Note: You should receive a form 1098 in the mail from your lender and/or loan originator that details any deductible points you paid during the tax year.

You can deduct the full amount of mortgage points in the year paid if ALL the following tests are met:

1.    Your home loan is secured by your main home

By this they mean your principal residence, where you spend the most of your time throughout the year, assuming you own multiple properties.

2.    Paying points is an established practice where the loan was made

This is pretty standard on U.S. mortgages that nearly always require points to be paid unless it’s a no cost mortgage where you get a credit.

3.    The points paid were not more than what is generally charged

Again, pretty vague and standard and mortgage lenders are now mostly restricted to charging defined amounts anyway.

4.    You use the cash method of accounting to file your taxes

This means you report income in the year you receive it and deduct expenses in the year you pay them. Most individuals use this method when filing their taxes.

5.    The points were not paid in place of typical closing costs

Typically, you’ll see closing costs separated out like on the settlement statement such as home appraisal fees, inspection fees, title and escrow fees, attorney fees, lender fees, and so forth. If the lender covered all these fees with points via a lender credit, it will likely be a no-go.

6.    The funds you provided at/before closing, plus any points the seller paid, were at least as much as the points charged

The funds you provided at/before didn’t have to apply to the points, and can include things like the down payment, an escrow deposit for property taxes and homeowners insurance, earnest money, etc.

But you cannot have borrowed these funds from your mortgage lender or mortgage broker. In other words, you can’t get a tax deduction on a cost you didn’t actually bear.

7.    You used your loan to buy or build your main home.

Pretty straightforward here – the points must have been used for a home purchase loan or home improvement loan.

8.    The points were computed as a percentage of the principal amount of the mortgage

Emphasis mine, this isn’t always the case so read your loan documents carefully and look for that percentage on the settlement statement. Sometimes lenders just charge a flat fee and that may not be reported as deductible.

9.    Amount is clearly shown on settlement statement as points charged for the mortgage

Note that the mortgage points may be shown as paid by you or via the seller’s funds.

Assuming you meet all these requirements, which isn’t too hard to manage, despite it looking like quite a lot, the mortgage points are fully tax deductible in the year the mortgage was taken out.

What About Points That Aren’t Fully Deductible in the Year Paid?

  • These points need to be deducted ratably
  • Meaning proportionately throughout the loan term
  • Which will equate to a much smaller deduction each year
  • And conditions must still be met…

As mentioned in the beginning of this article, not all mortgage points can be fully deducted in the year paid.  Some have to be deducted ratably, or proportionately each year for the life of the loan.

For example, if your mortgage points totaled $5,000 and you took out a 15-year fixed, you’d be able to deduct roughly $333 annually ($5,000/180 months = $27.78 x 12 months = $333).

*The first year you took out the mortgage would probably be less because you would make fewer than 12 monthly payments.

Points paid on refinance loans and points paid to buy second homes/investment properties must also be paid ratably.  But certain conditions must still be met in order to write off these points.

1. Must use the cash method of accounting

Same requirement we saw above for deducting points in single year.

2. Mortgage must be secured by a home

This is a more flexible requirement. For example, it can be a second home.

3. Your loan term must not be longer than 30 years (sorry 40-year mortgage holders).

This rule shouldn’t affect too many homeowners since most have 30-year terms or less.

4. If term greater than 10 years, terms must be the same as other loans offered in your area

Basically just saying the terms of the loan should be similar to those of other home loans, which again should be pretty standard.

5. Your loan amount must be $250,000 or less, or the number of points cannot be more than:

– 4 (four) if your loan term is 15 years or less
– 6 (six) if your loan term is longer than 15 years

I certainly hope your points aren’t that high and they probably won’t be! So again, shouldn’t be an issue here either.

As you can see, the rules are a lot less stringent if you’re simply deducting points over the full term of your mortgage.

A couple more notes though.  For home improvement loans, you can fully deduct in the year paid any points paid to improve your main home.

For refinance loans, you can fully deduct the portion of the points related to the improvement in the year you paid them, with the remainder deductible over the life of the loan.

If you happen to provide funds at closing that are less than the mortgage points, you can only deduct up to the amount of funds you provided during the year the mortgage was taken out; the rest must be spread over the life of the loan.

For example, if you paid one point ($1,000) on a $100,000 mortgage, but only came in with $750 of your own funds, you could only deduct $750 in the year the loan was taken out, with the remainder spread over the life of the loan.

You Can Deduct the Full Amount of Points When Selling or Refinancing

  • Assuming you were deducting mortgage points ratably
  • You might be able to deduct the full, remaining amount
  • When you prepay, sell or refinance
  • But certain restrictions apply

If the mortgage ends early due to a prepayment, refinancing, or foreclosure, you can deduct the remaining amount of the points in the year the mortgage expires.

But if you refinance your home loan with the same lender, the remaining points must be deducted over the life of the new loan.

If you don’t itemize your deductions in the year the loan is taken out, you can spread the mortgage points over the life of the loan and deduct in the future when you do itemize deductions.

Keep in mind that you can also deduct any mortgage points paid by the seller of the home, assuming you meet all the requirements listed above.

Note that certain closing costs such as appraisal fees, title and escrow fees, homeowners insurance, and notary fees are not interest, and are therefore not tax deductible.

As always, any tax related questions should be reviewed by a tax professional to ensure their accuracy as guidelines do change often.

(Source: IRS Publication 936)

Source: thetruthaboutmortgage.com

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A 12% increase in the conforming loan limits for 2023 raised the baseline loan limit for a single unit to $726,200 in most counties in the United States.

The adjustment is a result of a change in the average price of a home nationwide from the third quarter of 2021 to the third quarter of 2022. Home prices increased an average of 12.21%, and the baseline conforming loan limit kept pace.

Conforming loans may be cheaper than nonconforming loans like jumbo mortgages, but jumbo loans have their place.

Conforming Loan Limits for 2023

The conforming loan limits set by the Federal Housing Finance Agency can vary based on area and the number of units in the property.

In most counties, that number increased to $726,200 in 2023 for a one-unit property. In high-cost areas, the limit is $1,089,300 for a one-unit property.

In general, here’s how the baseline conforming loan limits break down for 2023.

Maximum baseline loan limit for 2023

Units Many counties in the contiguous states, District of Columbia, and Puerto Rico Alaska, Hawaii, Guam, and the U.S. Virgin Islands
1 $726,200 $1,089,300
2 $929,850 $1,394,775
3 $1,123,900 $1,685,850
4 $1,396,800 $2,095,200

Recommended: The Cost of Living by State

Why Care About Conforming Loan Limits?

Staying under a conforming loan limit means you’ll most likely obtain a lower-cost mortgage. Mortgages that “conform” to the limits can be acquired by Fannie Mae and Freddie Mac, government-sponsored enterprises.

Because these mortgages can be bought by the agencies and then sold to investors on the secondary mortgage market, they represent a lower risk to the lender and a lower cost to the consumer.

If you need to finance more than the conforming limit, you’ll need to look at jumbo mortgage loans.

Getting a jumbo loan involves clearing more hurdles than a conforming loan. The rate will usually be similar to conforming loan rates, but sometimes it can be lower. How jumbo can a loan be for a primary residence, second home, or investment property? It’s up to each lender.

Government-backed mortgages are also nonconforming loans, and although they serve certain homebuyers, they also may be more expensive than conforming conventional loans because they usually come with additional fees.

Recommended: How to Get a Mortgage Loan

Notable Counties Above the Standard Loan Limits

Loan limits are higher in counties where the average home price is above 115% of the local median home value. The loan ceiling is 150% of the baseline value.

For 2023, the high-cost-area loan limit increased from $970,800 to $1,089,300 on a one-unit property. Alaska, Hawaii, Guam, and the U.S. Virgin Islands also have a baseline loan limit of $1,089,300.

The following is a chart of counties in high-cost areas with an increased baseline loan limit. The increased amount for high-cost areas is either maxed out at $1,089,300 or the average percentage of increase for the price of a home in the area.

State County 2022 limit for a single unit 2023 limit for a single unit % change year over year
Alaska All $970,800 $1,089,300 12%
California Los Angeles County, San Benito, Santa Clara, Alameda, Contra Costa, Marin, Orange, San Francisco, San Mateo, Santa Cruz $970,800 $1,089,300 18%
California Napa $897,000 $1,017,750 13%
California Monterey $854,400 $915,400 7%
California San Diego $879,950 $977,500 11%
California Santa Barbara $783,150 $805,000 3%
California San Luis Obisbo $805,000 $911,950 13%
California Sonoma $764,750 $861,350 13%
California Ventura $851,000 $948,750 11%
California Yolo $675,050 $763,600 13%
Colorado Eagle $862,500 $1,075,250 25%
Colorado Garfield $856,750 $948,750 11%
Colorado Pitkin $856,750 $948,750 11%
Colorado San Miguel $756,750 $862,500 14%
Colorado Boulder $747,500 $856,750 15%
Florida Monroe $710,700 $874,000 23%
Guam All $970,800 $1,089,300 12%
Hawaii All $970,800 $1,089,300 12%
Idaho Teton $970,800 $1,089,300 12%
Maryland Calvert, Charles, Frederick, Montgomery, Prince George’s County $970,800 $1,089,300 12%
Massachusetts Dukes, Nantucket $970,800 $1,089,300 12%
Massachusetts Essex, Middlesex, Norfolk, Plymouth, Suffolk $770,500 $828,000 7%
New Hampshire Rockingham, Strafford $770,500 $828,000 7%
New Jersey Bergen, Essex, Hudson, Hunterdon, Middlesex, Monmouth, Morris, Ocean, Passaic, Somerset, Sussex, Union $970,800 $1,089,300 12%
New York Bronx, Kings, Nassau, New York, Putnam, Queens, Richmond, Rockland, Suffolk, Westchester $970,800 $1,089,300 12%
New York Dutchess, Orange $726,525 $726,525 0%
Pennsylvania Pike $970,800 $1,089,300 12%
Utah Summit, Wasatch $970,800 $1,089,300 12%
Utah Box Elder, Davis, Morgan, Weber $647,200 $744,050 15%
Virgin Islands All $970,800 $1,089,300 12%
Virginia Arlington, Clarke, Culpeper, Fairfax, Fauguier, Loudon, Madison, Prince William, Rappahannock, Spotsylvania, Stafford, Warren, Alexandria, Fairfax City, Falls Church City, Fredericksburg City, Manassas City, Manassas Park City $970,800 $1,089,300 12%
Washington King, Pierce, Snohomish $891,250 $977,500 10%
Washington D.C. District of Columbia $970,800 $1,089,300 12%
West Virginia Jefferson County $970,800 $1,089,300 12%
Wyoming Teton $970,800 $1,089,300 12%

Will Conforming Loan Limits Rise or Fall?

The baseline conforming loan limit is adjusted each year to reflect the change in the average home value in the United States.

The conforming loan limit has increased in six of the past 10 years and has never declined. From 2006 to 2016, for example, the conforming loan limit remained at $417,000, despite declining home values across the country. If home values continue to rise, the conforming loan limit will also rise.

First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.

Conforming Loan Limits Over the Past 10 Years

The 12% increase in loan limits for 2023 is lower than the 18% increase of 2022, which was the largest jump in the past 40 years. But it still represents an increase of $79,000 over the past year alone.

Conforming loan limit

Year Amount
2023 $726,200
2022 $647,200
2021 $548,250
2020 $510,400
2019 $484,350
2018 $453,100
2017 $424,100
2016 $417,000
2015 $417,000
2014 $417,000

The Takeaway

Conforming loan limits are intended to keep costs low for homebuyers. This means competitive pricing on mortgages, no matter what the housing market looks like each year.

If you’re looking to apply for a home mortgage loan, check out how SoFi can help. SoFi offers fixed-rate mortgages, and qualifying first-time buyers can put as little as 3% down.

If a supersized loan is needed, SoFi offers jumbo loans with as little as 10% down and no private mortgage insurance.

Check out the full range of SoFi Mortgages today.

Photo credit: iStock/marchmeena29

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SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

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Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility for more information.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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Source: sofi.com

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Most people probably expect to use a mortgage to purchase a home, but what if you have enough to pay in cash?

In a hot housing market, an all-cash offer can give homebuyers a significant competitive edge over those whose bids are contingent on getting a mortgage. And who wouldn’t want to avoid monthly house payments if they could?

Does it really make sense, though, to forgo getting a home loan — especially when you could invest the money and potentially earn a higher return?

Cash vs. Mortgage: A Quick Overview

According to the National Association of Realtors®, 28% of home sales in December 2022 were cash deals.

Those buyers undoubtedly had a mix of motivations when they decided to pay with cash. Some people don’t like the idea of carrying a big debt — or paying the interest on that debt. Others might want to skip some of the lending costs and nerve-wracking processes (approvals, appraisals, inspections, etc.) that are required when taking out a home loan.

And, yes, a cash offer can be an attention-getter when there are multiple offers on a house.

But it’s also important to look at the advantages of having a mortgage.

Before you move forward with a home purchase, here are some of the pros and cons of buying a house with cash vs. a mortgage.

Pros of Buying a House With Cash

There are some clear benefits to paying cash for a house, including:

Beating Out Other Buyers

A cash offer can help you compete more effectively with real estate investors who are able to pay cash for properties of interest.

Or you may be able to negotiate a better price with a seller who’s looking for a quick closing. If your seller already had an offer or two fall through because of contingency issues, it’s possible you’ll be perceived even more favorably.

Speeding Up the Buying Process

When you use a mortgage to buy a home, you can expect to spend a few anxious days working on your loan application, pulling together your paperwork, and waiting for the lender’s approval.

Then you’ll have to wait for a property appraisal, a title search, and other steps that let the lender know the collateral being used for the loan is solid.

With cash, you might be able to avoid some of those steps — and the costs that go with them. (You still may want to follow through, though, with procedures meant to ensure that your purchase is sound, even if they aren’t required. Otherwise, undiscovered issues could come back to bite you if you refinance or sell the home in the future.)

Buying When the Appraised Value Isn’t Market Value

Paying cash for a house can allow you to purchase a home that won’t appraise for the seller’s asking price (or the price the average buyer may be willing to pay). If you understand the problems and plan to make necessary improvements, you may still decide it’s the house you want.

No Monthly Payment and Fewer Long-Term Costs

With a cash purchase, you won’t have a monthly mortgage payment in your budget, which can feel quite freeing. And you can avoid some of the long-term costs associated with a mortgage, including interest and private mortgage insurance.

Cons of Buying a Home With Cash

Drawbacks also exist when paying cash for a house. Here are a few:

Losing Out on Investing Potential

Yes, if you pay cash, you’ll save by not paying interest, but could you make more money year to year by investing your money elsewhere? If you can lock in a low interest rate on a mortgage, it could free up cash for other purposes, including saving for retirement. (Plus, diversifying your portfolio is recommended in most cases. If you put most of your cash into your house, that’s just one asset — the opposite of diversification.)

Remember, diversification can help reduce some investment risk. However, it cannot guarantee nor fully protect in a down market.

Keep in mind also that if you liquidate assets to help pay for the home, you won’t just lose out on the earnings potential. If those assets have gone up in value since you purchased them, you also may trigger capital gains taxes.

Using Up All Your Cash

If purchasing your home with cash takes a big chunk out of your savings, you might not have the money you’ll need later for unexpected expenses or home improvements.

And if you end up using a credit card for those costs, the interest rate will likely be higher than it would be for a mortgage. The average rate in 2023 is 22.38% for new offers.

Cash Isn’t Always Better

An all-cash offer is a power move, but it won’t necessarily win the day. Though the thought of a quicker and easier closing will probably get the attention of the seller, they may still go with the highest offer, even if it includes a mortgage contingency.

Missing Out on the Mortgage Tax Deduction

If you itemize on your federal taxes, you won’t be able to deduct your mortgage interest if you pay cash for your home. Depending on what you’d pay in interest each year and what your tax bracket is, this could be a significant consideration.

The deduction can also be taken on loan interest for second homes, as long as it stays within the limits.

If you are looking to purchase your house
with a mortgage loan, SoFi
offers competitive rates.

How to Buy a House With Cash

If you like the idea of being an all-cash buyer and you’re wondering what that process involves, here are some next steps to consider.

Consolidate Your Cash

Getting your cash together in one place could take a while, so give yourself some time. If you’re ready to buy, you may want to move your money from savings accounts, and any investments and other assets you’ve liquidated, to one easy-to-access account.

If you already own a home and plan to sell it, you’ll have to factor that into this process, as well, especially if you need the cash from the sale of your current home to put toward the purchase of your new home.

Negotiate the Price and Sign the Contract

Once you know how much cash you have to work with, you can make an offer on a home. Be prepared to provide proof that you have enough money to make the purchase. If the offer is accepted, you’ll sign a contract.

Consider the Worth of an Inspection

If you’re paying cash, a home inspection won’t be required. However, it’s a good way to protect yourself in case there are hidden issues. The same goes for getting an appraisal, owner’s title insurance, a termite inspection, and homeowners insurance.

Prepare for the Closing

The closing is when you’ll seal the deal and pay the seller. You may be asked to provide a cashier’s check for the amount you owe, or you might be able to pay with an electronic transfer.

How to Obtain a Mortgage

If you’ve decided that buying a house — or a second home — with cash isn’t doable or practical, then you’ll need to know how much you can afford to borrow.

Getting prequalified and preapproved are basics in securing a mortgage. The first provides a ballpark estimate of how much you may be able to borrow and at what rates, and the other will tell you exactly how much you can probably borrow and at what terms.

When getting preapproved, lenders will review things like your credit scores, employment history, earnings, assets, and debt to make sure you can meet your mortgage payment obligations.

You’ll need to consider if your savings are enough for your down payment, closing costs, moving costs, and home repairs. Even if a 20% down payment is ideal, that’s not always realistic or required.

Recommended: What is the Average Down Payment on a Home?

Delayed Financing: An Option for Cash Buyers

Delayed financing is a way to combine the benefits of cash and mortgage home buying. In short, it’s a way for you to buy a house with cash but then refinance the property within the first six months to get some of your cash investment back.

This route gives you the advantages of being a cash buyer but the ability to regain some of your sacrificed liquidity.

The cash-out amount can vary by loan program and there are specific eligibility requirements. For example, lenders generally require that the purchase was an arm’s-length transaction. This means the buyer and seller do not have any relationship outside of this transaction.

The stipulation is included to help ensure that each party is acting without pressure from the other and that both have access to the same information about the deal.

You may also need to show the lender a copy of your settlement statement showing the home was purchased with cash, a title report showing that you are the owner and that there are no liens on the property, and proof that your own money was used to make the purchase (no borrowed, gifted, or business funds).

The Takeaway

Paying cash for a house can be a good way to get attention in a hot seller’s market. And the idea of avoiding a monthly mortgage payment — and interest — can be appealing. But there are potential downsides to an all-cash deal.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% – 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It’s online, with access to one-on-one help.

SoFi Mortgages: Simple, smart, and so affordable.

*SoFi requires PMI for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Minimum down payment varies by loan type.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility for more information.

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SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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Source: sofi.com

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Depending on the loan amount you need and where you’re buying a home in Wisconsin, you may find it difficult to find financing beyond the conforming loan limits. This is where jumbo loans come into play.

What is a jumbo loan?

A jumbo loan is a type of mortgage that’s designed to help you finance the purchase of a home that exceeds the limits set by the Federal Housing Finance Agency. In Wisconsin, this type of loan is often needed for high-end homes or properties located in expensive housing markets. With a jumbo loan, you can get the financing you need to buy your dream home, even if it’s more expensive than what a standard mortgage can cover.

If you find yourself in a situation where the home you’re planning to buy requires borrowing beyond the conforming loan limit (CLL), then you’ll need to pursue a jumbo loan. But because of the larger loan amounts and increased risk for lenders, Wisconsin jumbo loans often come with higher interest rates and stricter requirements than conventional loans. For instance, a larger down payment and a higher credit score may be required to qualify for a jumbo loan.

What is the jumbo loan limit in Wisconsin?

In Wisconsin, the conforming loan limit is $726,200 across all counties. For example, the conforming loan limit in Dane County is $726,200, so if the loan amount needed is even one dollar more than this amount, it’s considered a jumbo loan.

As a reminder, the loan amount is what determines whether or not you’ll need a jumbo loan, not the price of the home you’re buying. So, if you were to put $50,000 down on a $750,000 home in Madison, the mortgage would be $700,000, which is under the conforming loan limit for this area. In this case, your loan wouldn’t be considered a jumbo loan.

You can find more information on the conforming loan limits specific to where you’re looking to buy a home in Wisconsin by using the FHFA map.

What are the requirements for a jumbo loan in Wisconsin?

As previously mentioned, the requirements for a jumbo loan are much more stringent than a conforming loan. Each lender may have different requirements or processes, but below are the typical requirements for borrowers seeking a jumbo loan.

Higher credit score: When it comes to applying for a jumbo loan, credit score requirements are typically more stringent than for conventional mortgages. It’s possible that some lenders may accept a lower score, a credit score of at least 720 is generally required to qualify for a jumbo loan. It’s important to have a strong credit profile and a solid financial history to increase your chances of being approved for a jumbo loan.

Larger down payment: When applying for a jumbo mortgage, keep in mind that down payment requirements are generally more substantial than for conventional loans. While the specific amount will depend on the lender and the borrower’s financial situation, many jumbo loan lenders require a down payment of at least 10%, and some require as much as 20% or more.

More assets: Jumbo loan borrowers are typically required to have additional assets. In particular, lenders may require borrowers to demonstrate sufficient liquid assets or savings to cover one year’s worth of loan payments.

Lower debt-to-income ratio (DTI): When applying for a jumbo loan, Wisconsin lenders typically look for a borrower with a debt-to-income ratio (DTI) below 43%. Ideally, a DTI closer to 36% or lower is preferred. The DTI is calculated by dividing the sum of all monthly debt payments by gross monthly income. A lower DTI signifies a borrower’s ability to manage their current debt load while taking on additional mortgage payments. It also indicates greater financial stability and the ability to make on-time payments towards their jumbo mortgage.

Additional home appraisals: For a jumbo loan, a mortgage lender may require a second home appraisal to ensure that the property’s value is accurate. This is particularly true in places where there are few comparable sales. The appraisal acts as a second opinion and helps the mortgage lender to mitigate their risk. It’s important to note that the cost of a second appraisal may be higher than a typical home appraisal, particularly in areas with fewer sales.

Source: redfin.com

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For many individuals and families, owning a home is a lifelong dream. However, with rising real estate prices, some may find themselves seeking financing beyond the conforming loan limit. In this instance, you’d need to apply for a jumbo loan.

What is a jumbo loan?

A jumbo loan in Pennsylvania is a type of mortgage that is used to finance homes that exceed the conforming loan limits set by the Federal Housing Finance Agency (FHFA). Oftentimes, this type of loan is necessary for high-end, luxury homes or homes located in expensive housing markets.

If you’re considering purchasing a home that requires financing beyond the conforming loan limit (CLL), then you’ll need to apply for a jumbo loan. However, it’s important to note that jumbo loans come with higher interest rates and stricter requirements than conventional loans due to the larger loan amounts and risk associated with them. For instance, a larger down payment and a higher credit score may be required to qualify for a jumbo loan in Pennsylvania.

What is the jumbo loan limit in Pennsylvania?

In 2023, the conforming loan limit for a single-family home in most markets is $726,200. However, in Pennsylvania counties where home prices are higher, the jumbo loan limit can actually be much higher.

  • $726,200 is the conforming loan limit in most Pennsylvania counties
  • $1,089,300 is the maximum limit in Pennsylvania’s more expensive counties

As a reminder, the amount being borrowed is what determines whether or not you’ll need a jumbo loan, not the price of the home you’re buying. So, if you were to put $100,000 down on a $780,000 home in Monroe County, the mortgage would be $680,000, which is under the CLL for this area. In this case, your loan wouldn’t be considered a jumbo loan.

The following counties in Pennsylvania have a conforming loan limit beyond $726,200 for 2023:

County FHFA Conforming Loan Limit
Pike County $1,089,300

This FHFA map will give you more specific information related to the conforming loan limits in your county.

What are the requirements for a jumbo loan in Pennsylvania?

To qualify for a jumbo loan in Pennsylvania, borrowers must meet stricter requirements than they would for a conforming loan. Each lender may have different requirements or processes, but below are the typical requirements for borrowers seeking a jumbo loan.

Higher credit score: When it comes to securing a jumbo loan, credit score requirements are typically more stringent than for conventional mortgages. While some lenders may accept a lower score, a credit score of at least 720 is generally required to qualify for a jumbo loan. It’s important to have a strong credit profile and a solid financial history to increase your chances of being approved for a jumbo loan.

Larger down payment: Jumbo loans typically require larger down payments than conforming loans. While the exact amount varies depending on the lender and the borrower’s finances, down payment requirements for jumbo loans can be as high as 20% or more. That said, some lenders may offer jumbo loans with down payments as low as 10%, provided the borrower meets certain credit and income requirements.

More assets: Jumbo loan borrowers are typically required to have more assets than those seeking conventional loans. Lenders will review a borrower’s assets to ensure they have enough liquid assets or savings to cover at least one year of loan payments. This requirement is in place to mitigate the increased risk associated with larger loan amounts.

Lower debt-to-income ratio (DTI): Lenders look at a borrower’s DTI (debt-to-income ratio) to assess their creditworthiness and spending habits. For a conforming loan, a DTI as high as 50% may be acceptable to some lenders. However, jumbo loan borrowers are required to have a lower DTI, ideally under 43% and closer to 36%. This is because jumbo loans are riskier for lenders due to the larger loan amounts. Borrowers with a higher DTI may still qualify for a jumbo loan, but it could result in a higher interest rate or a stricter approval process.

Additional home appraisals: Your mortgage lender may require a second home appraisal for a jumbo loan, in addition to the standard appraisal, to get a second opinion on the property’s value. This is especially true in regions with limited comparable property sales. The second appraisal helps lenders ensure that they are providing funds for a property that is worth the loan amount or more.

Source: redfin.com

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Are you planning to buy a luxurious house in Arkansas or a home in an expensive market this year? If so, you might be wondering what a jumbo loan is and if it’s right for you. Whether your sights are set on a home in Little Rock or sprawling land in Fayetteville, join us as we break down what a jumbo loan is in Arkansas, the 2023 conforming loan limits, and what’s needed to qualify for this type of loan.

What is a jumbo loan?

A jumbo loan in Arkansas is a type of mortgage that enables homebuyers to borrow more than the limits set by the Federal Housing Finance Agency (FHFA) for conforming loans. The conforming loan limit is the maximum amount of money that a lender will provide to borrowers at a specific interest rate and is established each year. Jumbo loans are necessary for homebuyers who want to purchase a high-value property, such as a luxury home, that exceeds the conforming loan limit. 

If you need to borrow more than the conforming loan limit, you’ll need a jumbo loan. Arkansas jumbo loans allow you to borrow more money to buy a more expensive home, but they also come with higher interest rates and stricter requirements than conventional loans.

What is the jumbo loan limit in Arkansas?

In Arkansas, the conforming loan limit is $726,200 across all counties. For example, the conforming loan limit in Pulaski County is $726,200, so if the loan amount needed is even $726,201, it’s considered a jumbo loan.

Keep in mind that the loan amount is what determines whether or not you’ll need a jumbo loan, not the home price. So, if you were to put $50,000 down on a $750,000 home in Pulaski County, the mortgage would be $700,000, which is under the conforming loan limit for this area. In this case, your loan wouldn’t be considered a jumbo loan.

This FHFA map will give you more specific information related to the conforming loan limits in your county.

What are the requirements for a jumbo loan in Arkansas?

To qualify for a jumbo loan in Arkansas, borrowers must meet stricter requirements than they would for a conforming loan. Each lender may have different requirements or processes, but below are the typical requirements for borrowers seeking a jumbo loan.

Higher credit score: In order to be eligible for a jumbo mortgage, lenders generally expect homebuyers to have a credit score of at least 720. While some lenders may consider a score as low as 660, a credit score of less than that is typically not accepted.

Larger down payment: Purchasing a high-priced home typically requires a larger down payment from the buyer. Conforming loans may offer programs for down payments as low as 3%- 5%, but jumbo loans require a minimum down payment of 10%, with some lenders requiring up to 30%. If the homebuyer puts down less than 20%, they will likely need to pay for private mortgage insurance (PMI).

More assets: To qualify for a jumbo loan, lenders require borrowers to demonstrate that they have sufficient liquid assets or savings to cover at least one year of loan payments. The exact amount of assets needed can vary depending on the lender and the size of the loan, but having more assets can increase the chances of approval and potentially lead to better terms and interest rates.

Lower debt-to-income ratio (DTI): Mortgage lenders typically require a debt-to-income ratio (DTI) of under 43% for jumbo loan borrowers, although a DTI closer to 36% is preferred. This ratio is calculated by dividing the sum of all monthly debt payments by the borrower’s gross monthly income. A lower DTI indicates a stronger ability to repay the loan and can help applicants secure more favorable terms and rates. It’s important for Arkansas borrowers seeking a jumbo mortgage to have a clear understanding of their DTI and take steps to improve it if necessary.

Additional home appraisals: Your mortgage lender may require a second home appraisal as an extra layer of protection when it comes to jumbo loans. The second appraisal serves as an additional opinion to ensure the property’s value aligns with the loan amount. In places with limited comparable property sales, this supplementary appraisal may cost more than in neighborhoods with more frequent sales.

Source: redfin.com