What Is A Jumbo Mortgage?


The jumbo mortgage is the loan amount taken above the conventional conforming loan limits. The standard for the loan limit is set by the two government sponsored enterprises – Fannie Mae and Freddie Mac. These enterprises set the limit on the maximum value of any individual mortgage purchased from the lender. The Fannie Mae (FNMA) and Freddie Mac (FHLMC) are the largest agencies in US that purchase the bulk of residential mortgages from banks and other lenders allowing them to lend more mortgages. When these mortgage enterprises do not cover the full loan amount, the loan is referred to as jumbo mortgage. The interest rates on these jumbo mortgages are higher than those for conforming mortgages. There are many private and government-owned mortgage companies that provide such jumbo mortgages. You need to choose the best mortgage companies to avoid future circumstances.

Jumbo mortgage is considered as higher risk loan as larger amount of money is borrowed and it may become troublesome if the borrower defaults on the loan. Here, you need to pay higher interest rates for such jumbo loans. Many banks and lenders charge at least 20% rates. The foreclosure rates of subprime loans significantly affect the lenders and the banking industry.

During 2003-2007, most of the mortgage lenders relaxed the restrictions on how large the mortgage could be. This made possible for many people to buy the higher value homes using mortgages for most of the value. The standards on the jumbo loans implemented but the lenders relaxed the requirements that borrowers had to meet to receive these loans. Many lenders focused on increasing the number of loans and did not require borrowers to verify income status on application of loan. Some buyers secured these jumbo loans by charging five percent down payment for these loans.

Requirements for Getting Jumbo Loan:

The people willing to take the jumbo loan need to meet the following criteria. These criteria differ between lenders. Some of the common jumbo loan qualification requirements are:

The down payment of 20% is at least required to get the mortgage loan for purchase of house

If refinance of property is planned to get the jumbo loan, you must have at least 20% of the loan's equity value

Collect all the documents of your income. You will need to produce all the proofs of your income amount to show to the lender

The fixed rate jumbo loans are difficult to get since lenders can use the adjustable rate loans instead of fixed rate loans. This will increase your monthly mortgage payment from time to time

Your monthly mortgage payment has to be in the lender's limit. Most lenders will not approve the loans if the monthly mortgage payment is greater than 38 percent of your income prior to taxes

Most of the jumbo loans have the interest rates 5% higher than typical mortgage loans. The interest rates will vary from lender to lender

Also, for the jumbo loan, you should have a good credit score. Checking your credit score and your income is required to ensure that you are liable to repay the loan amount.


Source by Ryann Paul

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