The total amount of a jumbo mortgage loan is more than $417,000. Loans above this threshold aren't much different from those below, but for borrowers who aren't used to this kind of market, the differences can be big. It's also important to know that the ceiling for standard mortgage loans, as opposed to Jumbo loans, is not set in stone and can change at any time. This amount is decided by Freddie Mac and Fannie Mae, the two largest lenders in the United States.
One of the biggest differences with a jumbo mortgage loan is the interest rate. Since lenders consider homes with sale prices above the threshold to be "luxury" homes, they have expressed concern about the ability to resell such homes and have shown that appraisal values for homes in this category don't rise as steadily as those below the jumbo cap. Because of this, the lenders imply that they are taking on more risk with these places, so they need to charge higher interest rates to make up for this.
Along with the higher interest rate, there will also be a higher down payment requirement. Without a down payment, it is almost impossible to get financing for a jumbo mortgage, which is directly related to the risks mentioned above. Most jumbo mortgage lenders will want a down payment of at least 5–10%, with the exact amount depending on the borrower's credit score.
Documentation requirements are usually stricter. Since most jumbo mortgage loans come from "alternative" lenders like insurance companies and private investment groups, these groups usually have stricter documentation requirements than standard mortgage lenders. For example, they may want proof of income and assets on top of what standard mortgage lenders ask for. Also, these alternative lenders usually offer loan programmes with longer terms than those available to people who don't need a jumbo loan. Most of the time, the terms of jumbo mortgages can be as long as 40 or even 50 years.
There are more and more jumbo loans - As the price of homes in the United States keeps going up, more and more people need jumbo mortgage loans. In some places, property values have gone up a lot in the past few years. Because of this, it is possible to track the rise in jumbo mortgages by location. Borrowers, especially those in these areas, should learn about the different parts of jumbo loans so they don't get caught off guard or without enough information.
