How Much Do You Know About Jumbo Mortgage Loans?

Have you ever dreamed of owning a big luxury house? With a jumbo loan, your wish can be easily realized!

Today, jumbo mortgages are more than convenient to find than they used to be. Borrowers take advantage of loans in this kind to finance high-priced homes that may be times larger and more expensive than normal houses, though today’s requirements on eligibility get stricter.

Maybe your next luxury family property is just around the corner. A good understanding about jumbo loans would enable you to avoid many hassles that may be involved and save your time and money. All right, now follow our spotlight to see what you need to know about jumbo mortgage loans.

Jumbo Mortgage Loans Basics

In the US, a jumbo mortgage refers to a mortgage that is over the maximum limits of the conventional conforming loans. This maximum amount of any individual mortgage is set by Fannie Mae and Freddie Mac, two government-sponsored enterprises. At this time, the limit for most of the US is $417,000. That means if a mortgage loan exceeds this amount, it could be considered a jumbo mortgage. If you think this explanation is somewhat too “professional” to understand, just keep in mind that jumbo mortgages are home loans that are bigger than normal ones. They are higher than the conforming limit – $417,000 in general.

For Alaska, Hawaii, Guam, and the US Virgin Islands, any home mortgage loan over $625,500 is a jumbo. In some super expensive housing markets, like Los Angeles, this limit would be as high as $729,750, while a few places are in between.

Please take the particular note that here the “$417,000″ limit only applies to the single family properties. If the home you are going to purchase is a two-unit one, the limit will increase to $533,850, while $645,300 for three-unit homes and $801,950 for four-unit properties.

Broadly, jumbo mortgage loans are divided into two types based on the loam amount: super jumbo loans and conforming jumbo loans. Super jumbo loans refer to any loans that would range between $650,000 and $20 million, or even higher. The so-called conforming jumbo loans typically range from $417,000 and up to $729,750, with the interest rates much closer to those of conforming loans.

Higher Interest Rates due to Higher Risk

In the go-go years, generally around 2003 to 2007, mortgage lenders set relaxed requirements on jumbo loans in order to attract more customers. Borrowers could easily obtain jumbo loans without careful income verification and credit check, which resulted in higher risk for jumbo mortgage lenders for a number of reasons.

As we know, jumbo mortgage loans are frequently connected with luxury residences, which might be quite difficult to sell in a short period of time in full price in case that borrowers default. Besides, these luxury houses are more prone to valuation shifts with markets high and low than conventional residences.

Thus, given the associated risks, lenders would require a higher down payment as well as slightly higher interest rates on jumbo mortgage loans. The interest difference between a jumbo mortgage and a conventional conforming mortgage could be 0.25% to 0.5%.

Simple Strategy to Avoid Jumbo Interest

As jumbo loans usually carry higher interest rates than conventional loans, borrowers who expect an amount that’s quite close to the limit would try to figure out ways to avoid entering jumbo loans. In fact, some mortgage lenders today will allow you to take out two loans at the same time – the one for the bulk of money while the other in tandem with the first.

For instance, let’s say you need $450,000 to purchase a luxury house. You could borrow a conventional loan of $415,000 and then apply for a much smaller mortgage of $35,000 to make up the rest. In many cases, the interest rates would a bit higher on the smaller second mortgage, but you can choose to repay it in a relatively shorter term to avoid big interest amount. After all, for all added costs on this second loan, they are still significantly smaller than the jumbo interest.