A Jumbo loan can be defined as any single loan amount that exceeds the current conforming loan limit of $417,000 for a one unit property as set by the Federal Housing Finance Agency. Jumbo limits do increase depending on the number of units per property and where the property is located.
Factors to Take Into Account Concerning Jumbo Loans
- Fannie Mae and Freddie Mac, the government sponsored mortgage programs that purchase the large bulk of U.S. residential mortgages, DO NOT buy Jumbo loans. These types of mortgages are frequently bought on the secondary market by outside investors or kept in house by private lenders.
- Jumbo mortgage loans tend to have higher mortgage rates. There are typically two reasons for this: first, loans of this nature are typically tied to luxury residences, which can be tougher to sell due to the lower numbers of prospective home buyers. Second, homes of this nature are often prone to valuation changes during market shifts.
- Due to the higher risk involved with jumbo loans, lenders usually seek a higher down payment from applicants.
- Many lenders require multiple appraisals on jumbo loans due to the subjective nature of pricing properties that have need of this type of mortgage.
- Jumbo loans are frequently structured around 40-50 year amortization, thus allowing the borrower to pay the loan back over a longer period of time. While this can be seen as advantageous for the borrower, the pressure it puts on the lender is what typically drives up the overall rate.
Due to the mortgage crisis of the late 2000’s, it is now much more difficult to obtain financing for a Jumbo Loan. This has been caused by the lack of a secondary market for mortgages not covered by Fannie and Freddie Mae. That said, if you are willing to pay the premium rate that often accompanies a Jumbo Loan, this type of mortgage is available for home financing.