Go Big or Go Home – 7 Reasons Why Jumbo Mortgages are Currently Your Best Option

Jumbo Mortgages Current Best OptionIntroduced in the 70’s, jumbo mortgages are available for home buyers who need a larger-than-average mortgage. Jumbo loans, or jumbo mortgages, allow people to take out mortgage loans for larger amounts than the traditional conforming limits. Jumbo loans were very popular before the recent economic crisis because prices were very high in some areas even for modest homes (Read: Everything You Need to Know About Jumbo Mortgage Loans).

Mortgage loans have conforming limits that are set by Fannie Mae and Freddie Mac. These limits represent the maximum amount that these two government backed organizations are willing to pay in order to buy the loan from a lender. If Fannie Mae and Freddie Mac do not cover the full amount, the mortgage loan is considered a jumbo loan. Not being backed by these two organizations means that jumbo loans will have higher interest rates than conventional mortgage loans. Also, giving out a jumbo loan is considered high risk by lenders, so the qualification requirements will be stricter than for a conventional mortgage.

Conforming limits vary from one area to another and are usually higher in expensive housing markets. Once you start looking for a home, you may be surprised that you may have to take out a jumbo loan in order to buy a $500,000 home in some areas, while you can buy a house with the same value by taking out a conventional loan in other areas.

Who is a Jumbo Mortgage Designed For?

Jumbo mortgages are designed for people who can afford a more expensive home that can’t be bought with a regular mortgage. Right now, the borrower is not necessarily the one who decides that he or she needs a jumbo mortgage. After the housing market crashed recently, many lenders found themselves having large financial issues due to giving out jumbo loans too easily, so now they are the ones who decide if you need a jumbo loan. If a borrower can’t pay off the jumbo loan quickly, the interest charges will add up to a small fortune over time.

Jumbo mortgages are considered very high-risk by lenders, so they won’t give them out to anyone. In order to qualify for a jumbo mortgage loan, borrowers must have an excellent credit score, typically over 720 (Read: What Credit Score Do I Need to Qualify for a Mortgage?). Their debt-to-income ratio must also satisfy the lender’s requirements. To minimize risk, the lender will probably ask for a larger down payment, usually 30 percent of the total loan amount.

Reasons Why You Should Get a Jumbo Mortgage

Jumbo mortgages may be more expensive than traditional mortgages, but can also be very advantageous to those who need such a mortgage. Here are the top reasons why you should get a jumbo mortgage.

  1. You need the extra money that a jumbo mortgage provides. The largest reason why you should get this type of loan is that you need more money to buy a larger home or a home situated in an expensive area. A jumbo loan will also help you avoid spending all your savings in order to buy a home (Read: Need Help Keeping Up With Mortgage Payments?).
  2. You avoid taking out two or more mortgages. Sometimes, purchasing a home requires taking out two, or even more, mortgage loans. Taking out and paying off two loans instead of one can be overwhelming and more expensive. Jumbo mortgages simplify the process of buying a home by allowing you to make the purchase with a single mortgage loan.
  3. Jumbo loans come in several shapes and sizes. Like traditional mortgages, jumbo loans come with various terms and options, depending on what you look for. You can choose to take out a short-term or a long-term jumbo mortgage, with an adjustable or fixed interest rate. The type of jumbo loan that you can get depends on what your qualifications and requirements are.
  4. Interest rates on jumbo mortgages have started decreasing. The government introduced a stimulus package back in 2009 in an effort to stimulate home sales and the growth of the economy. Interest rates on jumbo loans are actually lower than the rates on conventional loans in many cases, and they have dropped to record lows as a result of the government’s involvement. Read more about their low interest rates here.
  5. Applying for a jumbo mortgage has become easier. Applying for this type of loan is still more difficult than applying for a traditional mortgage loan, but recent developments in the housing industry have made it easier than before. The main reason is the competition between lenders, who have lessened their requirements in order to attract more home buyers.
  6. Refinancing a jumbo mortgage can yield bigger savings than refinancing a traditional mortgage. Refinancing a traditional mortgage at the right time can bring thousands in savings (Read: Quick Tips on Mortgage Refinancing). Because jumbo mortgages are much larger, refinancing them can bring even larger savings, which can be used for a number of other things, like paying off other debt or living expenses.
  7. Jumbo mortgage offers are more attractive than ever. In order to attract those who qualify, most lenders are offering special offers for taking out a jumbo loan. These offers include reduced closing costs and fees, faster processing and many others. Lenders can afford to reduce or even waive some fees, because jumbo loans yield more profit for them than conventional mortgage loans since they have higher interest rate. To read about the bank’s latest interest in jumbo mortgages click here.

Determining your budget and knowing exactly what kind of mortgage loan you are looking for is very important when deciding to get a jumbo mortgage. While jumbo mortgages are more attractive than ever right now, you should also remember that they are more difficult to get, and come with higher interest rates than traditional mortgage loans. Jumbo mortgages are a great option for those who need larger mortgages and want to avoid having to take out two or more mortgage loans in order to become home owners.

Everything You Need to Know About Jumbo Mortgage Loans

Jumbo Mortgage LoansA mortgage loan is a very important product because it gives the majority of Americans access to home ownership. It would be quite difficult for most people to purchase a home without the help of a mortgage loan. Mortgages come in various shapes and sizes and are designed to accommodate the needs of most people, whether they are first time home buyers or real estate investors. Mortgages have several characteristics that differ based on the borrower’s needs and qualifications (Read: Are You Applying for a Mortgage? These Things Might Ruin Your Chances of Approval!) . One of these characteristics is the size of the mortgage loan.

Regular mortgage loans usually require a 10 to 20 percent down payment, certain debt-to-income ratios, and a good credit score. Depending on these factors, your interest rate might be higher or lower, and you may be able to borrow more or less. In some areas you won’t be able to buy a home valued at over $400,000 with a regular mortgage, while in others you can buy homes that cost over $700,000 by using a regular mortgage. That amount is more than enough for most people and families, but not enough for others. If you have the means to keep a large mortgage, you may want to borrow more than the maximum limit of regular mortgage. In that case, you should take a look at jumbo mortgages.

What is a Jumbo Mortgage Loans

A jumbo mortgage loan is nothing more than a regular mortgage loan that exceeds the conforming loan limits set by Fannie Mae and Freddie Mac. The limit varies from one area to another, so you can expect to have to take out a jumbo loan for a home that is worth a lot less than other homes in better areas. Generally, the maximum limit is significantly higher in more expensive housing markets.

Lenders take a larger risk when giving out jumbo loans, so they will be more careful when giving out this type of mortgage loan. A default on a jumbo loan would hurt the lender financially much harder than a regular loan. Jumbo loans typically require a 20 percent down payment, which means that the borrowers have a larger investment in their homes, making them less of a default risk. Lenders require a very high credit score, which means that the borrower has a good history of repaying his or her debt, giving the lender more peace of mind (Read: How to Get a Great First Mortgage).

The Advantages and Disadvantages of Jumbo Mortgage Loans

Jumbo mortgages are a perfect choice for those who need larger mortgages, but they also have other advantages. Here are the most important advantages of a jumbo mortgage loan:

  • Just One Loan. By taking out a jumbo loan you won’t have to take out two or more different loans. Jumbo loans provide the money that you need to make a home purchase, and allow you to avoid having to take out multiple loans, which can be pretty complicated (Read: Taking Out a Third Mortgage – Is That Possible?).
  • Low Rates. Interest rates on jumbo loans are low. Interest rates on jumbo loans have started to decrease in 2009 when the federal stimulus package was introduced.
  • Big Savings. Refinancing a jumbo loan can bring large savings. Refinancing any mortgage loan will usually bring savings, so refinancing a loan that is larger than usual can bring even greater savings.

Jumbo mortgage loans bring great advantages, but also have a few downsides. Here’s what you need to keep in mind when taking out a jumbo loan:

  • Higher Rates in Comparison. The larger the risk the lender is taking, the larger the interest rate will be. While interest rates on jumbo loans are lower than ever, they are still high when compared to interest rates on conventional loans (Read: Jumbo Loan Rates vs. Conventional Home Loan Interest Rates).
  • Less Approval. Qualifying for a jumbo mortgage loan is more difficult. You must have a great credit score and a large income to qualify for a jumbo mortgage loan. While you can get away with having a less than perfect credit score when applying for a regular mortgage loan, jumbo loans require a prefect or near perfect credit score (Read: Boost Your Credit Quickly With These Simple Tips).

Jumbo mortgage loans, like any other loan, are designed for borrowers with certain needs, and will not be a great choice for everyone. Knowing what type of mortgage you need is very helpful when buying a home. It can make the difference between a great purchase and one that will give you nothing but trouble along the way.