What Is A Jumbo Loan?

 

 What Is A Jumbo Loan?

A jumbo loan is a home mortgage that exceeds the traditional mortgage amount imposed by Fannie Mae and Freddie Mac, the two government-directed agencies that purchase mortgages from lenders. These loans are used when buyers wish to purchase high-end properties that are available for sale. Because the risk of default on these mortgages are higher, particularly in some areas of the country that were hit hard by the mortgage crisis, individuals applying for these loans may be subject to additional requirements beyond what is needed for a conventional loan. During the mortgage crises when prices inflated significantly, jumbo loans were common. When home values fell dramatically, many of these loans went into default. As a result, jumbo loans began to disappear. However, with the economic recovery, the availability of jumbo loans began to expand. Today, these loans are available at very low interest rates, making them a good choice for some buyers. Veterans must follow the required application process for acquiring a VA home loan, which includes proof of current or past service.

Higher Rates For Jumbo Loans

These loans generally are at higher rates than conventional mortgages because of the increased risk for the lender. This risk is not simply due to the credit worthiness of the borrower. The problem lies in the real estate market for high-end properties, which are particularly sensitive to market highs and lows. These more expensive properties have fewer buyers and may be on the market for longer periods of time. To cover this increased risk, lenders generally ask 0.25 to 0.50 percent more in interest for these loans. However, VA guaranteed these loans are competitive with conforming home mortgage rates.