A jumbo loan is a mortgage with a loan amount that exceeds the conforming loan amount. Those conforming loan limits range from $417,000 to $729,750 depending on the cost of housing in the area. It is the amount of the loan, not the value of the real estate that determines whether a jumbo loan is required. For example if you buy a home for a purchase price of $500,000 but have a 20% down payment, your loan amount will be $400,000 and qualify for a conforming loan. Any loan that exceeds this limit is considered to be a Jumbo loan.
As a rule of thumb, you can purchase a home that's two to three times your annual income. Special loan programs exist for first time buyers who want to purchase a home with a Jumbo Loan. The amount you can borrow depends on many issues, some of which include: your current savings; your current debts; the down payment; your employment history; and your credit history.
Up to a year ago jumbo loans in Philadelphia, PA was more challenging to qualify for due to the higher risk. This is because it was not federally guaranteed. A borrower's approval is scrutinized in more detail, and will be required to pay a higher interest rate on the criteria with a larger down payment to conform to the loan amount.
Cost Of A Jumbo Mortgage Loan
Mortgage lenders set the price of borrowing money with a home loan (the rate at which the mortgage is repaid over time and the fees charged initially) by the risk level of the investment. The more likely they believe the mortgage holder is to make their payments each month for the life of the loan, the lower the cost, and vice versa. The risk level is determined by a complex formula based on the data of how previous mortgages performed. The reason is, there is more money involved jumbo mortgages inherently carry greater risk, and will be priced somewhat higher than their conforming counterparts.
You can keep the cost as low as possible by showing reduced risk to the lender in other areas such as borrowing a smaller portion of the value of the home. By coming up with a larger down payment in a purchase, or limiting the loan amount on a refinance. An excellent credit score, and high income relative to your overall debt will also work in your favor and lower the cost of a jumbo loan.
Types of Jumbo Mortgages
Just because you are taking out a larger loan does not mean you are limited to only a 30 year fixed rate mortgage program. There is a wide variety of jumbo loan options including:
3 Year Jumbo ARM (Adjustable Rate Mortgage)
5 Year Jumbo ARM
7 Year Jumbo ARM
10 Year Jumbo ARM
15 Year Fixed Rate Jumbo Mortgage
On the other hand, if you bypass a substantial bank and utilize a niche lender you'll not be subject to help these same problems. Niche lenders hold loans independent books and collect the eye for the life of these loans. Because these loans usually are not being sold, lenders can set their particular rules, rates, and fees that can be more favorable. The most beneficial jumbo mortgage rates can be found with these lenders who are experts in jumbo home financial loans.
The process of applying for a jumbo loan is the same as applying for a mortgage of a lower amount though there may be increased requirements due to the larger loan amount. Your mortgage lender will collect information to present to the underwriter who will approve or deny the loan, or ask for additional information. This will include information on your financial past, present, and future such as your credit history, current assets and liabilities, and your income. It will also include data on the property such as an appraisal giving an estimation of the home's value, and a title search to be sure there are no outstanding undisclosed liens on the real estate.