Jumbo Loans are larger than the Conventional Loan Limit as determined by the government backed enterprises: Fannie Mae and Freddie Mac. In 2010 the Conventional Loan Limit is set at $417,000 for residences in most of the United States apart from Alaska, Hawaii, Guam, and the U.S. Virgin Islands, where the limit is $625,500. As of June 30th 2008 the Housing and Economic Recovery Act of 2008 temporarily raised the limit to $729,750 or 125% of the median home value within a metropolitan area, whichever is lesser. These are still in place through at least 2010. However, mortgage lenders have not freely adopted these measures due to the high risk nature inherent in Jumbo Loans.
Getting a Jumbo Loan
In order to fund a Jumbo Loan your mortgage broker/banker has to go to a much smaller pool of lenders. This means that Jumbo Loans cost more since the supply of them is even smaller than the supply of Conventional Loans. This results in three things that make Jumbo Loans different from Conventional Loans:
- Higher Interest Rates
- Higher Down Payment
- Higher Closing Costs
Higher Interest Rates
Jumbo Loans have a higher interest rate than conventional loans because they are a higher risk to the investor. So they will typically have to hold it in their portfolio longer thus increasing their risk to market issues.
Higher Down Payment
Since a Jumbo Loan increases the investors exposure they want to make sure you are serious about buying the home. A higher down payment resolves both of these issues by putting you in a larger seat at the table and ensuring that you can hold that seat.
Higher Closing Costs
A Jumbo Loan home is a larger investment not just financially but physically. For these reasons Jumbo Loan Lenders require that two appraisals be performed to ensure that the home is a sound investment and set at a fair market value.
Talk to an experienced financial advisor who has worked with Jumbo Loans directly if you have any questions.
