A home loan that exceeds the conforming limits is known as a Jumbo mortgage. In most parts of the United States, the Jumbo loan limit is $417,000 while in other high-cost areas like Alaska and Hawaii it is usually $625,000. Jumbo loans are different from conforming loans in that they require higher interest rates due to the large amount of financing they offer.
Eligibility for a Jumbo loan
Jumbo loans generally require higher down payments. The down payments, however, vary with the lender. It could be 15%, 20% or 30%. Applicants for a jumbo mortgage should have an income-to-debt ratio of 45% or less. The reserve amount required for the borrowers of the loan can go up to 20%. A Property appraisal is also required to support the mortgage and the purchase price of the home. The minimum credit score for any applicant to qualify is usually 700+.
Jumbo mortgages were designed to benefit people who could afford luxury homes with higher monthly installments. This was beneficial in the sense that they could still acquire the loans with little savings.
Advantages of Jumbo loans
Most mortgages do not exceed the conforming limits set by the government. This is the main advantage of Jumbo loans. The fact that they exceed the conforming loan limits means the interest rates are higher. Jumbo Mortgage allows the borrowers to acquire luxury homes, something that would be impossible with regular or fixed-rate mortgage. People who have always wished to purchase luxury homes can get them with this type of loan.
Multiple loans are not required if you take a jumbo loan. When borrowers look for this kind of loan they usually do it to avoid having to go to more than one lender. This means each month the borrower has just one installment. The various Jumbo loan options also make it attractive to borrowers. The different types of interest rates offered by the lenders are meant to suit the needs of the borrower. You can choose either an adjustable rate jumbo or a fixed rate jumbo, depending on your ability to pay monthly.
Interest rates for Jumbo Loans dropped following the federal stimulus package (2009) making it more attractive to borrowers. The decision to reduce the interest rates on the loans was done with the aim of boosting the economy and growing the real estate industry. With these attractive interest rates borrowers can refinance their jumbo loans for low-interest loans. Loan application has also been made easier for borrowers. A few years back, acquiring a Jumbo Loan was an uphill task. Prospective home-buyers can easily meet the qualifications for these loans. The offers from lenders are also getting more attractive each day. Some of the things lenders are doing to make it borrower-friendly is quick processing of the loan and reduced lender fees.
One of the demerits of these loans is that you have to prove to the lender that you own lots of assets supported by a relatively high income. This kind of loan is big, so it is understandable when the lender demands that you meet these requirements. Apart from having a high credit score, you should be able to show that you have the financial ability to handle the loan. The high interest rate is also a factor that should worry the borrowers. When compared to the conventional loans, Jumbo loans have a higher interest rate (about half a percentage higher). These interest rates are usually more than the traditional mortgages so borrowers may find it difficult to pay the monthly installments after they qualify for the loan.
Borrowers and lenders sometimes decide to extend the term of the loan considering its sheer size. The usual mortgage is to be repaid in a period of 30 years, but they may extend it to 40 years. This is an advantage to both the lender and the borrower. The lender gets extra interest charges while the borrower is able to acquire a larger residence.
A Jumbo Loan which is paced at $650,000 and above is usually referred to as a super jumbo loan. Jumbo loans are available and flexible for borrowers who meet the qualifications above. With the low interest rates and the attractive packages offered by lenders, it is worth applying for one.