Jumbo mortgage loan
Many people think that jumbo mortgage loans are the loans in which loan amount is very large. This definition is not completely true. Though jumbo mortgage loans can have huge loan amounts in some cases, it is not necessarily so always. Jumbo mortgage loans are the loans provided through mortgage in which loan amount is more than the conforming loan amount. Conforming loan amount for mortgage loans is set by Freddie Mac and Fannie Mae.
In United States, above agencies purchase residential mortgage in bulk from lenders and for same purpose, conforming limits have been formed. Conforming limits for purpose of jumbo mortgage loans are in dollar terms. This limit is $417000 in most of states. In some states like Hawaii, Alaska, U.S. Virgin Islands etc. conforming limit has been set at $625000. If loan amount is over $650000, it is called as super jumbo loan. Due to increase in the prices of homes in prime and sub prime localities, jumbo mortgage loans have become quite popular in past few years. In fact, mortgage industry has witnessed a substantial increase in the numbers of applicants desiring jumbo mortgage loans. Borrowers can get benefit of interest only option also. Repayment period for jumbo mortgage loans can be up to 50 years in some cases.
Interest rates attached with these loans are generally higher than the rates attached with conforming loans. This variation can be from 0.25% to 0.50%. Interest rates also differ on the basis of the amount of loan and the type of property mortgaged. Despite the fact that lending institution can charge high rates, jumbo mortgage loans are considered as riskier loans for the lenders. This is because amount involved is huge and if there is a default in payments by the borrower, lender would find it very difficult to sell the mortgage residence or real estate for full price. Also, jumbo mortgage loans are normally provided for luxury residential units and prices of these units fluctuate in a great manner as per the market conditions. This risk is reduced to some extent by the lender by way of higher down payment requirements. Lenders providing jumbo loans like borrowers to make down payment from 5-25%. Since amount involved is huge, lenders generally go for two appraisals on the concerned real estate.
Like in conventional or traditional mortgage loans, options are also there in jumbo mortgage loans. As said above, down payment is required. Generally, a person cannot get no money down jumbo mortgage loans. Refinancing of jumbo mortgage loans is an expensive affair. This is because of the fact that closing costs for refinance loan are very high. Some lending institutions provide extension and consolidation agreements. This is done so that mortgage tax is not paid on the principal balance again while getting refinance loans. Among home buyers, jumbo mortgage loan programs famous are 80/20 and 80/15. At present, a person getting jumbo mortgage loans up to 80% of appraised value can get the loan amount without paying for private mortgage insurance. Earlier, private mortgage insurance was required where down payment was less than 20%. Even borrowers can now get second mortgage loan at higher rates without paying private mortgage insurance. Due to sub prime mortgage loans and due to great numbers of foreclosures, lenders are now putting some restrictions regarding mortgage loans.
Some Important Aspects
Jumbo mortgage loans have become famous because more numbers of people now like big sized homes. In some communities, these loans are the only option available. Even people are ready for paying thousands of dollars extra as interest on these loans. Getting jumbo mortgage loan is a big decision taken by a family. Care should be taken for choosing the best program available in terms of interest rate and loan amount. Fixed rate jumbo mortgage loans are provided for a repayment period of 15-40 years. In these loans, rate of interest remains same. Fixed rate loans should be taken when interest rates are low. This would assist in saving great amount of interest over full loan period. In adjustable rate loans, fixed rate of interest is offered for an initial period of 1, 3, 5, 7 and 10 years. A person can select this period as per his requirement. After this period, annually adjusted interest rate is applied. New interest rate, after the expiry of fix rate period, is calculated by addition of margin to index. Both options mentioned above are popular in United States.
If mortgage balance of any person is more than the conforming limits, a person can go for the combination of 80/10/10 80/15/5 jumbo mortgages. Interest only jumbo mortgage loans are considered as one of the best options available if a person is thinking of moving to other residence in a short period of time.
Approval process regarding jumbo mortgage loan of most of lenders is same as is applied in case of traditional or conventional mortgage loans. That is why these loans have come up a powerful tool in the hands of borrower. There are no higher limits regarding jumbo mortgage loans. While selecting the repayment term of loan, borrower has to be cautious. Shorter periods should be selected in those cases where borrower is confirmed about the present and future level of income.
Longer periods have lower monthly payments despite the fact that interest rate applied is higher. If a person is not able to maintain the repayment schedule attached with jumbo mortgage loans, his home can be foreclosed also. Hidden charges, terms and conditions etc. should be seen very carefully. Less reputed institutions are charging exorbitant fees towards jumbo loans. Even a person may have to pay high fee for filling the mortgage application. Hidden fee can be charged in the form of maintenance cost. Big and reputable banks and other lenders do not resort to such practices and it is better if these are contacted for getting jumbo mortgage loans.
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