Huge and expensive luxury houses usually come with equally large mortgages, so lenders are offering a type of loan that enables home buyers to have access to higher loan limits than they would with a conventional loan. This loan is called a “jumbo loan” and it is designed to help home buyers who are in the market for a very expensive and luxurious home. Depending on many factors, such as size, materials used in construction, or location, some homes have bigger prices than the majority of homes in the United States, and can’t be purchased by securing a conventional mortgage loan.
What is a Jumbo Loan?
Jumbo loans are nothing more than larger mortgage loans. The government has imposed lending limits for most home loans, making it impossible to buy a more expensive home through conventional mortgage loans.
Loan limits in most parts of the country are usually in the $400,000-$600,000 range. Anything over that limit is considered a jumbo loan. Jumbo loans can exceed $1,000,000, but they are much harder to obtain than conventional loans. Qualifying for a jumbo loan is significantly harder than qualifying for a conventional loan, especially if your credit score is less than perfect.
Jumbo Rates Compared to Conventional Rates
The sales of properties that are worth more than $750,000 have increased over last year by over 35 percent. The number of properties sold for $1,000,000 and over has also increased by over 25 percent compared to 2012. The jumbo loans market seems to be recovering nicely after the big hit that it received a few years ago, when many lenders stopped offering this type of loan.
The difference between current mortgage rates on conventional mortgage loans and jumbo loans has narrowed lately, making jumbo loans more appealing. Interest rates for a 30-year fixed-rate mortgage loan that conforms to the government limits were 3.75 percent in April, while rates for jumbo loans were only 3.85 percent.
After being raised in 2008 in order to stimulate the housing market, limits for jumbo loans were lowered in many states in 2011. If limits for conforming mortgage loans are lowered, then home buyers have to take out bigger jumbo loans to be able to buy a home with the same price.
Interest rates for jumbo loans might be as low as rates for regular mortgage loans, but the requirements are stricter. Depending on your financial situation and credit score, getting a jumbo loan this year could possibly be the best choice for you. If you can prove a large income, perfect credit score and you are able to provide a fairly large down payment, then a jumbo loan can be your opportunity to purchase the luxury home of your dreams.