Jumbo mortgages are often a confusing idea to newer prospective homeowners, but these products have the right name. The term "jumbo mortgages," coined around 30 years ago, applies to any mortgages available above "conforming" loan limits. Conforming mortgages are those eligible for purchase by Fannie Mae (Federal National Mortgage Association) or Freddie Mac (Federal Home Loan Mortgage Corporation). Jumbo mortgages are available to home buyers who need -- and qualify for -- larger loans to complete their real estate purchases.
How Jumbo Mortgages Work
Jumbo mortgages work like all others. The notable difference is in their size. Fannie Mae and Freddie Mac set conforming loan maximum amounts annually. Current maximums are $417,000 for most -- but, not all -- single-family homes. Some locations in the United States have higher limits. Should you need a higher mortgage than the current maximum, you must find a jumbo loan. Most qualification documents and requirements for jumbo mortgages are similar to conforming rules; income, debt and asset verification documents are usually identical.
Jumbo Mortgage Types
Most jumbo loan products are similar or identical to most conforming mortgages. You can choose fixed-rate or adjustable-rate mortgages (ARMs). You normally have ARM options for six-month or one-, two-, three- and 5-year loans. Even in the current "tight" credit environment, you might find a few interest-only mortgages to help you qualify based on your income and debt load. The only difference is the amount of the loan -- the minimum you can borrow is $417,001.
Jumbo Mortgage Rates and Terms
Jumbo rates are usually a bit higher than conforming mortgage rates. The rate difference is tied to the higher risk to your lender in taking on a larger loan. For example, if the current conforming mortgage fixed rate is 5 percent, you can expect to find jumbo loans priced at 5.25 to 5.375 percent. Jumbo ARMs also have start rates with the same small differential. Other jumbo loan terms -- including repayment years, index, margin or interest-rate caps -- are similar or identical to conforming loan terms.
Who Offers Jumbo Mortgages
Many banks and mortgage companies that offer conforming and government loans through the Federal Housing Administration (FHA) and Veterans Administration (VA) also offer jumbo mortgages. You can also find lenders that are jumbo loan "specialists." There are even lenders who specialize in mortgages of $1 Million or higher. Once you know you need a jumbo loan, first, do a self-qualification check to learn whether your income qualifies for these high loans. If you do, shop by Internet or telephone, or from a referral, for the best rates and terms.
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