Is a Jumbo Home Loan Right for You?

by Kelly Richardson Columnist

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For those homeowners with their sights set on a luxury home, the jumbo mortgage is an effective financial arrangement. Jumbo mortgage loans differ from conventional loans in a variety of ways. If you are looking for a home loan for an upscale residence, you should know about the jumbo mortgage.

A jumbo mortgage is a loan with limits higher than conventional home loans. Because there is a greater risk for the lender, jumbo mortgage loans are subject to stricter borrowing guidelines. Depending on which lender you elect to do business with, the limits of a jumbo mortgage will differ. For example, Freddie Mac and Fannie Mae, the two government sponsored lenders, set an upper limit of $415,000, while insurance companies and traditional commercial banks set upper limits at $1 million. Here are some of the finer points of the jumbo mortgage that you should be aware of.

Jumbo Mortgage Loan Characteristics

  • » Greater Risk. If a jumbo mortgage loan goes into default, it is more difficult to sell a luxury residence for close to market value.
  • » Down Payments. To offset this elevated risk for lenders, they typically require a larger down payment than conventional home loans.
  • » Interest Rates. Another leverage point for the higher risk of jumbo mortgages is that they often come with a .25% to .5% higher APR.
Another potential issue to consider before applying for a jumbo loan is the prospect of refinancing. Due to the high rate of closing costs associated with refinancing a jumbo mortgage, lenders have devised a couple of ways to save you money should you need to refinance.

Refinancing a Jumbo Mortgage

  • » Service Extension. Many lenders will offer an extension and consolidation agreement to avoid making mortgage tax on the same principle.
  • » Title Insurance. In some cases, title insurance companies will offer you a 50% discount for those refinancing between one and ten years.
A jumbo loan is a viable option for obtaining your dream home. Ask your lender about information on the jumbo loan to see if it is indeed right for your situation.

Fannie Mae
U.S. Department of Housing and Urban Development

About the Author
Kelly Richardson covers the real estate scene in major cities across the country. His articles appear in educational journals, periodicals, and e-zines.

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