Jumbo Loans
While they have significant risk and requirements, a jumbo loan has a significant place in today’s financial society. A jumbo loan is a loan which has an amount over other conventional loans. The normal loan limit in the majority of the U.S. is $417,000, the exceptions being Alaska, Hawaii, Guam, the U.S. Virgin Islands , and some areas of California, where the limit is $625,500. Jumbo loans are used to help purchase houses where these limits are not high enough, such a luxury housing areas.
Usually, a jumbo loan is used to purchase a luxury home. Luxury prices are more susceptible to market value highs and lows and fluctuate often. Recently however, jumbo loans are now often used to purchase more modest homes in big city areas, due to economic strains.
One of the issues with jumbo loans is that they provide a great risk to lenders. This is due to the fact that if a jumbo loan were to default then they would have to attempt to sell the luxury housing as quickly as possible which is often difficult. Lenders defend themselves by having a higher down payment and often require two appraisals for jumbo loans.
The interest rate on jumbo loans are higher than traditional loans. This is done to defend the lender who has to deal with the higher risk of jumbo loans. The difference between rates varies due to the current market price of risk. It is often expensive (and difficult) to refinance a jumbo loan due to the closing costs. However, some lenders offer a service of extension and consolidation agreement, so that a jumbo loan lender will not have to pay for mortgage tax once more on the same principal balance. In other instances, title insurance companies will offer up to a fifty percent discount, this is usually required by law for those who will be refinancing within 1 to 10 years. The largest discount offered for jumbo loans is for refinancing within a year.
Jumbo loans, from their beginnings as a way to help in the purchase of luxury homes, have become more common and therefore more important. While they offer more risk than the average loan, many lenders are still willing to do jumbo loans with out too much hassle. So, if you feel that you need a jumbo loan, prepare for what is in store, and make sure you discuss all of your concerns with your mortgage lender.
For all of your mortgage planning needs which include Fixed Rate Mortgages, We at American Capital Mortgage would like to help you save money and keep your loan process easy and quick!
