What's in this article?
Buying any home—whether it’s through a conforming or non-conforming mortgage—means it’s crucial to understand the costs associated. And for jumbo loan closing costs, this is especially true.
For first-time homebuyers and those looking to trade up to a bigger or pricier area, Jumbo loan closing costs can be significantly greater than your average conventional loan.
Jumbo loans will require extra attention, understanding, and budgeting to get you into your dream home as affordably as possible.
Why do I need to pay closing costs?
Closing costs is a broad term encompassing the fees charged by professionals to finalize the real estate transaction and home loan. Fees range, on average, from 2% to 6% of the loan amount.
These costs can affect your budgeting, negotiation, and overall loan expense management when purchasing a property.
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Factors affecting jumbo loan closing costs
Whenever you buy a property, several factors have the potential to influence the closing costs associated with your purchase, including:
- Loan amount: Since jumbo loans are designed for higher-priced homes, the larger loan amounts can lead to higher closing costs, typically 2% to 6%.
- Property location: Where the property is located can also impact closing costs. For example, properties in certain high-cost areas of America may require higher fees due to increased property values and local regulations.
- Lender’s requirements and fees: Lenders may have varying requirements and fees for jumbo loans, which can affect closing costs. Additional documentation might be required, such as tax returns and bank statements, as well as cash reserves to cover mortgage payments. These requirements can lead to higher closing costs for borrowers.
- Manual underwriting and additional appraisals: Jumbo loans often require manual underwriting, which can be more time-consuming and costly than automated underwriting processes. Additionally, some lenders may require a second appraisal for jumbo loans, further increasing costs.
Typical closing costs for jumbo loans
When applying for a non-conforming mortgage, borrowers should be prepared for these closing costs that comprise the majority of jumbo loans:
- Appraisal fees: Appraisals are necessary for determining the property value. Jumbo loans may require a second appraisal, which can increase the overall cost. Appraisal fees can range from $350 to $650 or more, depending on the property and location.
- Origination fees: The lender charges these fees for processing and originating the mortgage loan. Origination fees usually range from 0.5% to 1.5% of the total loan amount.
- Title insurance: Title insurance protects both the lender and borrower from any defects in the property’s title. The cost of title insurance varies by state, but will often range from 0.5% to 1% of the home purchase price.
- Survey fees: The lender often requires a property survey to determine its boundaries and details. Survey fees typically cost between $349 and $685.
- Recording fees: The local government charges these fees to record the transfer of property ownership. Recording fees can vary depending on the location and transaction complexity.
If you’ve purchased a conforming mortgage in the past, you’ll likely see a lot of similarities between these costs and a jumbo loan costs.
But, compared with conventional loan closing costs, jumbo loan closing costs are likely to be higher due to the larger loan amounts.
How to prepare for jumbo loan closing costs
Preparing for jumbo loan closing costs is important for both first-time and experienced homebuyers looking to upgrade. Here are some key strategies that can make your luxury home a reality.
Saving for a larger down payment
A larger down payment can mean a double bonus of starting with more equity as well as potentially lowering closing costs. In general, aim to save at least 10-20% of your dream home’s purchase price for a down payment.
Maintaining a strong credit score
Higher credit scores will likely help borrowers achieve better loan terms, and lower interest rates, and can help reduce their closing costs. Most jumbo lenders expect a credit score of 700 or higher.
Building cash reserves
Lenders may require cash reserves for jumbo loans, impacting your closing costs. Building up your cash reserves can help meet these requirements and demonstrate financial stability.
Shopping around for competitive rates and fees
Take a look at multiple loan offers from the lender. This helps you find the best rates and fees for your jumbo loan. Don’t hesitate to shop around and negotiate with lenders to lower your closing costs.
By following these steps, you can be much better prepared for the closing costs associated with jumbo loans and find the right lender for your needs.
Tips for reducing jumbo loan closing costs
People might think that their closing costs are set in stone, but that’s not the case. To minimize the closing costs associated with jumbo loans, consider the following strategies.
Negotiating with the lender
Some lenders may be willing to reduce or waive certain fees, such as origination fees or appraisal fees, in order to secure your business. Don’t be afraid to negotiate and ask for discounts or fee waivers.
Exploring lender credits
Lender credits can help offset closing costs by providing a credit towards specific fees. In exchange, you may accept a slightly higher interest rate. Discuss this option with your lender to determine if it’s a suitable choice for your situation.
Comparing multiple loan offers
Shopping around and comparing loan offers from different lenders can help you find the most competitive rates and fees. By comparing multiple offers, you can identify the best deal and potentially save thousands of dollars in closing costs.
Understanding jumbo loan closing costs
A thorough understanding of jumbo loan closing costs is vital for first-time homebuyers and those seeking to move up to a bigger or pricier location.
These costs can significantly exceed those associated with conventional loans, making it even more necessary for careful budgeting and preparation.
Start by laying out your mortgage budget—a mortgage affordability calculator is an excellent start.
Get in touch with Homefinity to find out your best and most affordable options to get the home you deserve.
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