What Is a Jumbo Home Loan?
A jumbo home loan is a home loan whose loan amount is larger than what conforming lending guidelines (FNMA and FHLMC) have set as a maximum amount for their lending limits. These larger loan amounts are usually priced with higher interest rates since the market to buy their closed loan paper is less available that the lower conforming dollar amounts.
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What is a Jumbo Mortgage Loan?
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A jumbo home loan is any loan that is higher than the $417,000 conforming loan amount that is set by FNMA and FHLMC (Fannie Mae and Freddie Mac). (Exceptions are the $625,500 maximum for high cost areas of Alaska, Hawaii, Guam and the U.S. Virgin Islands). There are two categories of jumbo loans, usually categorized as a dollar amount. While jumbo is any amount higher than $417,000, a loan that is higher than $650,000 is known as a super jumbo. Super jumbo goes into the million-dollar-plus market whose buyer is a person with a high net worth. These loans are usually sold off to larger lenders or life insurance companies, depending on the buyer's appetite for loans of this nature.
Jumbo Risk Explained
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Jumbo and super jumbo loans are scrutinized in a different manner than conforming loans. The super jumbo represents a different level of risk to the lender, and the market that it will be sold to. While jumbo is treated very much like conforming as to underwriting guidelines, the super jumbo loans are not as defined. Each lender might have their own added layer of investigation prior to funding. The biggest risk is the reduced number of investors to buy these loans. The million-dollar-plus loans salability is reduced even more. If the home goes into foreclosure, the market time for homes in this price range is much longer than homes in smaller price ranges.
More Restrictive to the Borrower
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The percentage of down payment will be higher than a conforming loan amount, usually at least 20 percent of the purchase price. Loans higher than $1 million may require as much as 50 percent for down payment, depending on the person's credit worthiness. Super jumbo loans usually require two appraisals. These appraisals are ordered separately and from two appraisal services. There may be other reviews to be certain of value in these high risk properties and loan amounts.
Jumbo Loan Options
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The borrower can be offered a 40- or 50-year term as a way to keep payments lower. Interest-only loans and adjustable rate mortgages are popular loans. This loan freezes the beginning rate for three or five before adjusting. After the frozen period, it will adjust once per year. Interest rates are higher for jumbo loans. Higher risks to the lender equates to higher rates to the borrower.
Lenders of Jumbo Loans Drying Up
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Since the mortgage meltdown, many lenders have decreased lending in the super jumbo category. Decreasing home values and the potential inability to sell off these loans to maintain liquidity is behind this. The luxury home real estate market has slowed drastically as a result. The damage is to existing homeowners who need to refinance and are unable to find acceptable funding. Selling the home is hindered for the same reasons. There is little help for this price range of borrower since the loans are too large to be included in any of the government assistance programs. which target "affordable housing."
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