What is a Jumbo Loan?
The housing bubble has been very disappointing for people wanting to buy their dream homes. The prices of some starter homes in some places have made people look towards jumbo loans to get the house of their choice. A jumbo loan is also known as a non- conforming loan. This is because it does not adhere to the guidelines of the Federation National Mortgage Association, neither to those of the Federal Home Loan mortgage.
A jumbo Loan is a residential or commercial mortgage. This loan exceeds the limitations of the above mentioned two associations in terms of requirements from the mortgage originators. The loan limits for the non- conforming loans are set in every January and the subsequently the amount of the jumbo loan are based on them.
The loan limits effective from January 1 2006 are as follows- For houses that are in the contiguous United States, for a single family residence the maximum loan limit is $417,000, for a property that is two unit the amount is $533,850 for a three unit property the loan limit becomes $645,300, and eventually for a four unit one it becomes $801,950. For the regions of Alaska and Hawaii the limit is $625,000 for a single unit, $800,775 for a two unit, $967,775 for three unit property. The limit for a four unit one is $1,202,925.
The Jumbo loans were big enough but something even bigger makes its presence felt. All loans whose limits exceed $650,000 are known as super jumbo loans. The risk involved in such loans is very high so the interest rates for this loan are higher than those of the conforming loans. The methods that lenders adopt to get around this loan are to break up the jumbo into two separate loans.
The benefit of a jumbo loan is that the buyer can finance a high end property fro instance a vacation home, primary residence etc. The major disadvantage that emerges is the high rate of interest associated with such a loan. A jumbo mortgage is a mortgage with a higher loan amount as compared to a conventional mortgage.
The jumbo mortgages are applicable when the conventional limits don’t cover the full amount of the loan. Freddie Mac and Fannie May are the large agencies that purchase the mortgages in the US. The procedure that they adopt is to set a limit on the maximum dollar value the mortgage that they purchase from an individual lender.
As of now the limit has been set at $417, 000. This makes the market look towards other places for placement. The other large investors are insurance companies and banks who step in to fill in the maximum mortgage amounts that go up to the $1-2 million range. The interest rates are obviously greater than the conforming mortgage rates and also vary according to the different types of property and mortgage amounts.