Jumbo mortgage loan: All that you need to know

Do you want to buy a high-priced home and require a large amount of mortgage? You can take out a jumbo mortgage loan with a high dollar amount. You can also consider taking out jumbo loans while refinancing your home. The extra lump sum cash can help you to meet your financial needs.

Jumbo mortgage loan – What it means

Jumbo mortgage loan can be defined as a home loan that exceeds the conforming limits as set by OFHEO (Office of Federal Housing Enterprise Oversight). Every year, Freddie Mac and Fannie Mae set a limit beyond which you cannot get conventional mortgage loans. You need to take out jumbo loans if you require a higher loan amount. Therefore, jumbo mortgages are not guaranteed by Freddie Mac or Fannie Mae. Usually, home loans exceeding $417,000 are considered to be jumbo mortgages. However, the limit keeps changing from time to time.

What to consider before applying for a jumbo mortgage

You need to consider certain factors before taking out jumbo mortgages. The factors are discussed below.

• Required down payment: You need to make a down payment in order to take out a jumbo mortgage loan. Usually, you need to put down 20% of your home’s purchase price. However, the down payment usually depends upon the locality where you’re purchasing your home.

• Your credit score: Most lenders require a minimum 700 credit score in order to approve a jumbo loan request. Therefore, if your score is low, it is advisable that you increase it before applying for a jumbo mortgage loan.

Interest rates on jumbo mortgages

Usually, jumbo mortgage rates are comparatively higher than that of conforming home loans. The amount of interest you need to pay is dependent on the amount of your jumbo mortgage; the higher the mortgage loan amount, the higher is the rate of interest. Generally, the rate of interest on jumbo loans is about 2 % higher than that of conforming loans. This is because higher risk is associated with jumbo mortgages. When a borrower defaults on such loans, it is not quite easy for a lender to sell a home and recover the loan amount as there is a comparatively small market for homes that are secured by jumbo loans. Therefore, lenders charge high interest rates on jumbo mortgage loans in order to cover the potential risk associated with such loans.

Due to the economic downturn, jumbo mortgages became quite expensive in 2007-2008. Moreover, it was also comparatively harder to take out jumbo loans. However, the condition has started improving and some banks have started offering jumbo mortgages from April 2009.