As a newly minted doctor, your many years of hard labor are now paying off. You have a salary, and you’re now itching to get the new house you’ve always dreaming of owning. Maybe it’s the million dollar home that your non-professional husband has been eyeing for the past decade. While there are many practical considerations of even getting a McMansion, one term that you should familiarize yourself with is jumbo loan.
For most people, you will not be buying a house in cash. You will be taking out a loan, perhaps with a standard 20% down payment. So if you buy a $1 million home, you are asking for an $800,000 mortgage. Guess what, in most places in the United States, any loan greater than $417,000 becomes a jumbo loan.
A jumbo loan is simply a larger loan. If you live in a high cost of living area like California, New York, or Connecticut, you’ll probably need a jumbo loan anyway to afford the housing. Here is a list of top considerations for jumbo loans:
- You will have a higher interest rate. Large loans have higher risk, and thus you will likely have to pay an extra 0.5-1%.
- If your first job doesn’t work out or you don’t make partner and have to move, you’re out of luck. It’s going to be more difficult to sell an expensive house.
- Make sure that you can afford the higher monthly payment. Remember, you make more as an attending than as a resident, but you likely have greater expenses now.
- The value of your house can go down. Your mortgage can go underwater, and it would be difficult to refinance in the future.
- Pay attention to the private mortgage insurance (PMI) requirements. Before your McMansion accumulates equity, you will have to pay PMI. Certain lenders will allow you to terminate PMI after you achieve a certain amount of equity.
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