Mortgage Products: The Jumbo Loan

Mortgage Products: The Jumbo Loan

Jumbo loans are are loans for houses over one million dollars, they’re not for the average borrower. Or so we thought. Today, however, thanks to the boom in real estate prices, and the ever declining value of the dollar, more and more average consumers are applying for these jumbo loans, and using them to finance their home purchase.

The most typical area to see the home prices rising to a level that makes a jumbo loan necessary is not just high priced home areas but in your resort areas. Many of these homes have escalated tremendously in price over the last couple of years, and the loan needs have risen to all time highs. The jumbo loan has now become a real mortgage product, not just an investing tool.

Before we get too deep into the real estate market, and the use of the jumbo loan, perhaps we’d better define the jumbo loan and the consequences of financing your mortgage in this manner.

The jumbo loan is a loan that exceeds conforming loan limits. In 2020 conforming loan limits range from $510,400 to $765,600. In fact, this is the defining characteristic of the jumbo loan. The other “baggage”, if you will, that often accompanies these loans, is the large amount of paper work, higher private mortgage insurance, and the higher interest rate. It might also be interesting to know, that Freddie Mac and Fannie Mae, the two largest mortgage buyers in existence today, usually establish these limits, and dictate to many lending companies exactly what they will buy, and how. It should not need to be mentioned that these loans present a bigger risk than the other, traditional loan needs, and therefore must meet some rigorous requirements.

Now, having explained the definition of the jumbo loan, it deserves to be said that jumbo loans may require higher down payments. Our Jumbo loan programs provide one of the most competitive rates in the industry. You can qualify Here.

To further explain the role Freddie Mac and Fannie Mae play in the determination of the jumbo loan limits and expense, you need to understand how the mortgage market actually works, and the role these two companies play in that process. Today, if a mortgage company loans you money to purchase a home, you sign a waiver that states that you understand that your loan may be sold to another servicer. You lender should simply have you sign a form that says you know your loan is going to be sold; who is it? Freddie Mac and Fannie Mae. The mortgage companies have a limited amount of funds to lend and have to resell your mortgage in order to make another loan. So, quite naturally, they must abide by the rule.

Jumbo loans can prove quite risky, so Freddie Mac and Fannie Mae don’t even purchase these types of mortgages. For the mortgage companies that do, there are set limits, and they require more information, larger proven income levels and adequate private mortgage insurance to assure that the home won’t go into foreclosure and auction.

What is happening today, however, is the growing segment of the population that really needs the jumbo loan financing in order to buy their home.  Real estate prices are increasing at an astonishing rate, and right along with that, is the increase in products being offered by the mortgage lenders, therefore, it only stands to reason that we would see an increase in the jumbo loan market. The current estimate for the jumbo loan market is generally around 15%; that is still a pretty large hunk of the mortgage market.

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