A jumbo mortgage home loan is lent in the amount above a traditional conforming loan. Conforming loan numbers are dictated by Fannie Mae and Freddie Mac. These represent the maximum amount of money that Fannie and Freddie will spend when purchasing a home loan. If Fannie and Freddie’s maximums won’t cover a total home loan amount, it is called a jumbo mortgage. Jumbo mortgage loans have much higher interest rates compared to conforming mortgage loans.
Some Facts and Figures
The limit on jumbo conforming loans was updated in 2008 by way of the Housing and Economic Recovery Act as signed by then President George W. Bush. This Act increased the limit to $729,570 or 125% of the metropolitan statistical area’s median home value. The lesser of the two values is the limit. The jumbo loan conforming high-cost limit was set at $625,000 in 2011. David Adamo, CEO of Luxury Mortgage states, “There are roughly 3,300 counties in the United States…100 are eligible for the high-cost limit of $625,500.” (http://www.bankrate.com/finance/mortgages/what-is-jumbo-mortgage.aspx) For general areas, it was set at $417,000 in 2010. 92 counties have limits between $417,000 and $625,500.
Jumbo mortgage loans tend to require very large down payments and there are usually two appraisals. In order to qualify for a jumbo loan nowadays, buyers typically have to put a minimum of a 20% down payment. They’ll also have to document their income and the mortgage can’t be greater than 38% of the buyer’s pre-tax income. Jumbo home loan fixed rates are hard to come by. They are typically lent as adjustable rate loans.
The requirements for jumbo home mortgage loans have become more strict after the nation’s recent housing crises. When the banks were recklessly lending money to home buyers in the early 2000s, a borrower could put only five percent down on the house and borrow the rest by way of a jumbo loan.
Rates and Lenders
The difference between a regular home loan and a jumbo mortgage loan is usually between .25% and .5%, depending on the market’s varying cost of risk. The interest rate on a jumbo home mortgage loan is high because it is risky for lenders. Jumbo loans are large in magnitude so they carry an inherent risk. Upon a default of a jumbo home loan, it is usually hard for the lender to sell the home at a price that would cover the original home sales price. These homes tend to be luxurious and the luxury home market in the U.S. is volatile.
Jumbo home mortgages are usually lent by the nation’s largest banks and they actually hold onto the balance of the jumbo loans. Such an action is quite rare in today’s “bought paper” environment where all sorts of debts are bought and sold many times over. Some jumbo home mortgage lenders include ING, Bank of America, MetLife Bank, GMAC Mortgage and U.S. Bank.