Jumbo home loans - what are they? A jumbo
home loan is a loan that is above the conforming loan
limits, which as of September 2007, the time of this
writing, the conforming loan limit is $417,000. Jumbo
home loans often have a rate bump to them over
traditional conforming loans because their is more risk
involved with the higher jumbo home loan amounts.
Therefore, if you are able to keep your mortgage amount
under the jumbo home loan limit, it may be a good idea
to try to make a larger down payment so that you can
obtain the best home loan financing and stay away from
jumbo home loans.
Getting home financing for a jumbo home loan is not always easy. The
parameters and lending guidelines become more strict- assuming the borrower has more of an ability to afford a larger home mortgage than the typical home owner.
Super Jumbo mortgages, which are jumbo loans of $650,000 or more, may require multiple property valuations or appraisals prior to final approval.
Underwriting jumbo loan takes little longer than conforming loans because the lender might need to re assess the value of the property. The appraisal either need to go through the review done by the lender or order another appraisal done on the house. The lender wants to make sure that the value of the property is the fair market value
With a jumbo mortgage loan a borrower is going to pay a little bit higher interest rate than with a traditional conventional loan. Once a Loan exceeds the limits that are set by Fannie Mae and Freddie Mac, which is $417,000 as of 2006, the loan is considered a jumbo loan.
The reason that the interest rate is higher on jumbo loans, is because of the chance of default. The more money that the lender has invested in one particular property, the more risk that they also have invested in that property. More risk also equals a higher interest rate.
Jumbo loans have the same lending options as your conforming loans in regards to interest only, fixed rates, payment option arms, amortizing arms, and 100% financing.
Jumbo loans have different underwriting guidelines than the conventional loans do. The reason for this is that jumbos have to be packaged and sold differently in the secondary market. Investors in the secondary market want to protect
themselves from default on such large loan amounts.
While a jumbo loan may have a slightly higher interest rate and different underwriting criteria there are many options including
subprime loans available even with lower credit scores.
Jumbo loan guidelines will usually require more in the area of assets or cash reserves than their conforming counterparts. Many borrowers use 401K accounts or other retirement accounts to satisfy these reserve requirements.
When the Jumbo loan amount is only a little higher than conforming loan limits, one can avoid pay the higher Jumbo interest rate by dividing the loan amount into two mortgages, one within the conforming limit and a second mortgage to make up the difference.
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Information listed above is to be used for educational purposes only and is not guaranteed