Many people have heard the phrase “jumbo mortgage” and most likely know that it refers to a really large loan. But did you know that some houses in your neighborhood may require a jumbo mortgage and do you know what the loan limits currently are?
So how exactly do lenders define what qualifies as a jumbo mortgage? Actually it’s the government that sets this designation for loan amounts higher than what is considered a “conventional” or “conforming” loan. This means that, as of 2011, any amount borrowed over $417,000 in most states and $625,500 in some areas where property values are higher, including Hawaii, Alaska and California is a jumbo mortgage.
Considerations for jumbo mortgages
Keep in mind that a jumbo mortgage is not always given to those who can afford to make the payments on it. This is because there is a significantly higher amount of money going out to pay for this type of home mortgage , the risks are higher to the lender. This leads to limitations on who will purchase these loans.
If you want to obtain a jumbo mortgage, it is a good idea to invest in it only if you are confident you can qualify. There are often more limitations on things like the following:
- The interest rate is likely to be higher than that of a conforming loan. There is more risk and therefore that means a higher cost to the borrower in the form of interest.
- Most lenders require at least, if not significantly more than, 20 percent of a down payment. The higher the down payment, the more likely the lender will provide the loan to you. In fact, it is best for borrowers to put down enough to keep the loan under the jumbo mortgage rate if possible.
- Because of the high foreclosure rate for homes of this value, many lenders have restricted lending for these types of purchases. Finding a lender who is willing to provide you with this type of loan can be limiting.
- Limitations to the property. Jumbo loans are often used for larger homes and estates – but those can often be difficult to establish a market value for, especially if the home is somewhat unique or there is a lack of comparable sales.
A jumbo mortgage is a good option if you have no risk of losing your job or not having the money necessary to purchase the home. Keep in mind that your mortgage payment, interest and the terms for these loans vary just as they will vary for any other type of mortgage loan. Comparing interest rates is also very important for those individuals who plan to obtain a jumbo mortgage. If you want to buy a home, and the value is high, find out from your mortgage lender what you need to do to qualify.