Jumbo Home Loan

Getting home financing for a jumbo home loan is not always easy. The perameters 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.

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 themself 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 subpime 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.

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

Super Jumbo mortgages, which are jumbo loans of $650,000 or more, may require multiple property valuations or appraisals prior to final approval.

Another reason for the interest rate and underwriting differences with jumbo loans is that there are different buyers of these loans in the secondary market. There is a smaller pool of buyers because certain entities only buy conforming, or lower loan amount mortgages.

Your mortgage broker will have other large investors, such as insurance companies and banks, step in to fill the need, with maximum jumbo mortgage amounts going to the $1 million or $2 million range.

Jumbo loans will usually require 2 appraisals to confirm the value of hte collateral. This is done because Jumbo loans are considered riskier than conventional mortgages.

Jumbo and Super Jumbo loans differ than conforming mortgages in that they have loan amounts greater than $417,000 and have a slightly higher interest rate due to added risk to the lender. These jumbo loans that are over 1 million, consider credit scores, income type, and property classification as a means for qualify loan approval.

» DISCLAIMER: The information contained in this article on 'Jumbo Home Loan' is a collection of contributions by licensed mortgage professionals and is not the opinion of Broker Outpost LLC. Always consult a licensed professional before applying for a mortgage.