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What You Should Know About A Jumbo Loan
Although the housing market experienced a decline in the last few years, the cost of owning a home in many regions of the U.S. continues to climb. This fluctuating real estate market creates many opportunities for home ownership and provides a chance to purchase homes that once may have been unreachable. For some potential homeowners, having the ability to purchase a premier property involves securing a jumbo loan mortgage. Also known as a non-conforming loan, a jumbo loan covers a larger mortgage dollar amount than a conventional type of loan. These fully secured loans meet all of the normal standards for qualification and carry full liability to the applicant. Numerous homeowners take advantage of jumbo mortgage loan programs in order to purchase homes within many areas of the U.S. where home prices often exceed the conventional loan amounts.
Defining a Jumbo Loan
Two government supported agencies known as the Federal National Mortgage Association (Fannie Mae or FNMA) and the Federal Home Loan Mortgage Corporation (Freddie Mac or FHLMC) define the guidelines for conventional home mortgages. These agencies purchase a majority of mortgages in the U.S. and set dollar limits for home loans. The typical limit for these loans falls below $417,000, the standard set prior to 2008 that still applies in many cases.
Because of the variation between real estate markets in different regions of the U.S., some super jumbo loans are now granted and defined as conforming loans. Government economic stimulus programs that developed after 2008 increased conforming loan amounts to 175% of the previous limit of $417,000. The new mortgage limit of approximately $729,000 made it possible for many home owners to purchase properties in higher priced real estate markets such as California, New York and Hawaii. Super jumbo mortgage loans became a new standard in the highly competitive loan industry.
Jumbo loan rates vary according to the time period of the loan (30 years vs. 15 years), the equity or down payment amount and the current market conditions. Specific loan categories such as jumbo va loan programs carry reduced interest rates and particular loan terms. Competitive jumbo mortgage loan rates are available for home or commercial properties and may include early payoff options, adjustable rates or refinance conditions.
When to Consider Obtaining a Jumbo Loan
For potential homeowners who live in the highest priced real estate markets, jumbo home loans are the only option. Even first time home buyers with little equity may choose to finance the majority of the cost of the property in order to get established in the market. Home buyers who expect an increase in salary may be able to handle the payments for a short time with the intention of having more cash later on. Other buyers may be in line for a future inheritance that will allow them to pay off the loan at a later date and may feel comfortable financing a significant amount of the purchase price.
Potential owners who purchase speculative properties with the intention of reselling the home at an increased profit may also be interested in super jumbo loans. With the expertise about a specific region and the ability to turn a property quickly, it may be advantageous for builders or speculative owners to secure a large loan amount for a short period.
Things to Consider when Securing Jumbo Loans
All mortgages carry some risk for homeowners who overextend their budget or purchase a property that is beyond their ability to make the payments. If the loss of one income in a dual income household makes the jumbo loan payment unaffordable, the damage may result in losing the home. A prudent method to follow for all potential loan applicants involves evaluating the jumbo mortgage loan rate and ensuring that the payments are affordable. The impact of tougher qualification standards have made it more difficult to obtain these loans and lessened the possibility of default.
In many cases, jumbo loan interest rates could be significantly higher than the conforming loan rates. For example a 30-year fixed conventional loan may be currently available at 5% interest where a jumbo loan rate carries a 6% interest rate. Quotes vary depending on the down payment amount, for example, 20% down reduces the interest rate over a 10% down payment. Some lenders require a minimum 20% down payment to secure a super jumbo mortgage.
Risks may occur for speculative property buyers if the market does not perform as expected. The volatile real estate market requires patience and perseverance if a severe drop in a particular region occurs. Refinancing an existing jumbo loan provides an option for mortgage holders who entered the market during a higher interest phase. Keeping a close watch on jumbo loan mortgage rates and evaluating refinancing fees may prevent the loss of a property and delay the sale until favorable market conditions occur.
Types of Jumbo Mortgages for Homeowners
A 30-year fixed loan typically carries the lowest jumbo loan interest rate and allows the mortgage holder peace of mind knowing that the payments will remain steady through the life of the loan. This type of loan usually carries the lowest risk, however, early payments consist primarily of interest and the principle remains largely unpaid until later years of the loan.
Jumbo loans may also be purchased as an adjustable loan where the interest may vary over the life of the loan. A lower interest rate typically attracts potential applicants to this type of non-conforming loan. For first time homeowners or those who choose to pay down the loan may find this option attractive. Depending on the market conditions, the jumbo loan mortgage interest rate may actually reduce and provide lower future payments.
A va jumbo loan often provides a valid option for veterans and those who meet the specific qualifications for this type of loan. Although qualifying for a VA loan may be easier than with other programs, mortgage limitations and availability of lenders may make it somewhat difficult to obtain full financing for all types of properties.