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Need A Jumbo Mortgage? Mortgage Rates Can Be Great.

One might assume that it is only middle-class people who need loans to buy cars or houses or whatever else it is that their hearts desire.

This assumption however is a naive one at best.

Even the high income members of our society do need credit, albeit a much larger sum than the average Joe or Jane.

What is jumbo mortgage?

There are different types of loans out there. You’ve heard of personal loans, auto loans, housing loans etc. – but what does jumbo mortgage mean?

Every loan has an upper limit fixed by the regulatory authorities. When a housing loan exceeds these limits, it is termed as a jumbo mortgage loan. Jumbo mortgage loans do not conform to conventional loan limits which are typically set by Fannie Mae and Freddie Mac.

Now this leads to the next question.

What Are Fannie Mae and Freddie Mac?

The government sponsored Federal National Mortgage Association is known as Fannie Mae while the Federal Home Loan Mortgage Corporation is known as Freddie Mac. Both these enterprises promote the flow of mortgage funds.

What is a jumbo mortgage in MA?

These jumbo loan limits vary from region to region. The interest rates of various fixed housing loans and jumbo mortgage loans vary from time to time. The 30 year jumbo mortgage rate at Boston, Massachusetts is currently at 3.63%.

Out of the 3,143 counties in the US, 2,916 counties have an upper limit of 417,000 USD for jumbo mortgage loans. The high cost housing areas like Los Angeles, New York City and San Francisco have an upper limit of 625,000 USD.

When you are considering a jumbo mortgage loan for your house, you should find out what are the jumbo mortgage rates today in your area and the area you area of interest.

How do jumbo mortgages work?

Now that you have slowly begun understanding what are jumbo mortgages, let’s go into further detail on how they work. Jumbo mortgages typically carry more risk than the normal conforming loans.

Therefore they require more stringent inspection by the lenders and the entire approval process can be very intensive as well as extensive. However you might need to pay only a smaller down payment.

What is a down payment?

Down payment is the lump sum cash that you pay upfront to the lender,which is a percentage of the actual cost of the asset. The remaining amount is covered by the value of the property. Smaller down payments are not always advantageous to the borrower.

Though the upfront payment is low, the total amount to be repaid and the term of the long will be more. When your loan term is long, the rate of interest to be paid will be higher.

Additionally, the down payment amount has a direct impact on the Loan to Value (LTC) ratio. The Loan to Value Ratio is obtained by dividing the mortgage amount by the value of the property that is to be mortgaged. Usually if the down payment amount is more, then the LTC ratio is less and vice versa. Higher LTV ratio loans come with higher risk as opposed to lower LTV ones.

Do jumbo loans require mortgage insurance?

Smaller down payments often tends to attract a mortgage insurance charge. The reason for this additional charge is that it protects the creditor from the risk of you failing to repay the loan. And as mentioned earlier, jumbo loans come with jumbo risks as well from the view point of the lender.

If a handful of normal loans get defaulted the lender might still make up for his losses somehow. However, even if a couple of jumbo loan mortgages end up as defaults then the lender would have a difficult time saving himself from huge debts. Hence he cushions himself with the mortgage insurance charge.

However, one can work around this. For instance if you want to avoid this mortgage insurance fee, you could go for piggybacking loans. This essentially means that you take up multiple loans for the same property instead of one. This strategy allows you to stick to normal loans if you do not want to go the jumbo loan route.

Are jumbo mortgage rates higher?

The answer is yes, jumbo mortgage interest rates are generally higher than other loans. You can choose from different options, depending on whether you are looking for a fixed rate mortgage or an Adjustable Rate Mortgage. What is the difference between the two?

In a fixed rate mortgage loan, the interest rate stays the same for the entire term of the loan. On the other hand, in an ARM loan i.e. the Adjustable Rate Mortgage loan, the interest rate can vary over the years according to market factors. The interest rates at which ARM loans start off with might be less and they stay constant for a particular period of time. After that they change and can start increasing at some point in the future.

It is easier to predict how much you would need to set aside for your loan payments for a fixed interest loan since the amount will stay constant. But it is difficult to do so with ARM loans as it is not easy to forecast how the market will turn. The interest rates can fluctuate – if you are lucky they can decrease; if you aren’t then they can increase.

However the good news is that jumbo mortgage rates have been decreasing thanks to the federal stimulus package announced under the Obama administration in 2009. So now is a good time to go for that loan if you so desire.

Would you qualify for a jumbo mortgage?

The people who go for jumbo mortgages are categorised as HENRY, which is an easy to remember acronym for ‘High Earners Not Rich Yet’. These are people who earn a substantial income, have great credit scores and own valuable properties to boot. What’s more, you also need to be willing to get all your documentation and paperwork in perfect order.

Can you refinance a jumbo mortgage loan?

Yes it is possible to for refinancing with a jumbo mortgage loan. Whether it is a sensible choice or not depends on various issues. For instance, if you plan to sell your house in the near future, then refinancing might not be for you –be it a jumbo loan or not.

Again, refinancing is not a cakewalk. It requires a high credit score, as well as proper documents including payslips, tax returns and bank statements which prove your financial worth to the lender.

Can I get a jumbo mortgage with 10 down payment?

Until recently, the industry standard was that jumbo mortgage loans were issued only with a minimum of 20% as down payment. However in the recent times, some lenders are fine with giving out mortgage loans even with a down payment of just 10%. The downside to this is that they also charge higher interest rates and enforce a strict qualification process.

Here is a small table that gives you a comparison between normal mortgage loans versus jumbo mortgage loans at a glance:

Characteristics

Jumbo Mortgage Loan

Ordinary Mortgage Loan

Interest Rate

Higher than normal According to market conditions

Qualifying Procedure

Detailed & Thorough Quicker & easier

Loan Amount

High Limited

Risk To Lender

High Low

Required Credit Scores

Minimum 680 Varies but minimum 500

Down Payment

Usually 20% but can vary depending on other factors Lowest is 3% but varies depending on lender & your financial profile & property features

What are the advantages and disadvantages of a jumbo mortgage loan?

The biggest – and most obvious – advantage of a jumbo mortgage loan is that you will have access to a significant amount of funds. Most people end up living in cramped places only because that is what they can afford in an area that is close to work.

Or they can only afford a spacious and sprawling home somewhere far away from their work places. So they end up commuting long hours to and fro every day, which is naturally an absolute waste of time and energy. It can also have a detrimental effect on your health. With jumbo mortgage loans however, you won’t have to compromise on your living space anymore.

What’s more, you won’t need to disturb your savings in order to buy a home. Plus, refinancing a jumbo mortgage loan can actually provide you with increased savings as well.

Lastly, one of the biggest pros of a jumbo mortgage loan is that you do not have to follow up and keep track of multiple loans. Your funding needs are met by this one loan and all you need to do is to stay on top of a single loan. While this advantage can seem like a simple one, in reality it can be a real relief to not have to keep monitoring several loans all together.

So now, a jumbo mortgage loan can seem like the ultimate choice for you. But before going for a jumbo loan do pause a moment and be aware of the disadvantages as well. This will help you make an informed and balanced decision.

The major disadvantage of a jumbo mortgage loan is its interest rate. Yes, interest rates are falling but still they will always be higher than that of a conforming loan. Also, the entire process of getting validated for a jumbo mortgage can be tiresome and tedious, no matter how good the lender is. Plus you must have a nearly impeccable credit history and exemplary financial status for the lender to believe that you are fit for a jumbo loan.

Need some tips for getting a jumbo mortgage loan?

  • The first tip would be to keep working on your credit scores and improving them. The minimum requirement is normally 680 for a jumbo loan but if you could up your credit score it will help you get much better rates.
  • The second tip would be to get down and hunt for the best lenders in the market who can offer you the best possible package. Drive a hard bargain and compare different lenders before you finally choose one who happens to be the most optimal for you.
  • If you have already built a rapport with any financial institution they can come to your aid now. If you always bank with a particular bank and hold all your accounts with them, then they would well be aware of your financial standing. If you’ve been dealing with them for a long time and with substantial amounts of money, then negotiate with them for a jumbo loan.
  • You could also offer to pay more as a down payment if you can come up with the funds. This will entice the lender to be generous with you. 20% is the industry norm as stated earlier and you could even go lower in certain cases. Nevertheless, going higher will improve the chances of you getting the loan approved at a good rate.

Jumbo mortgage loans – should you go for it or not?

Although every person is different and unique, most people harbour the desire to own a beautiful home. Some can afford it, sadly some can never do so, while a privileged few can afford it if they use their resources wisely.

Jumbo mortgage loans can be a saviour if you happen to work – and live – in an expensive city in the United States. They can make it possible for you to own your dream home and do away with rentals once and forever.

You won’t need to find a new job, change your kids’ schools, uproot your family and relocate just because you cannot afford a house in that area. Jumbo mortgage loans are not as difficult to obtain as they used to be many years back and they are gaining popularity.

These days an increasing number of people are finding jumbo mortgage loans to be beneficial. Lenders too have gradually become more open, flexible and accommodative when it comes to offering jumbo mortgage loans.

Now that you know about jumbo mortgage loans, opt for one and buy your dream house. Find out what the jumbo mortgage rates are around the area you are considering and provide the perfect home for your family.

[PDF]2015 Conforming Loan Limits

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