Get the Home of Your Dreams with the Help of Jumbo Loans
You have combed the market and you have found the home of your dreams, but the cost of the home is well over $400,000. Due to the cost of the home, you might be worried that getting a mortgage loan will be impossible. Fortunately, with the help of a jumbo loan, you can take advantage of the down market as you purchase a luxury home that is more costly than the usual loan parameters. Before seeking out a jumbo loan, however, it is important to learn as much as you can about this type of loan and how you can qualify to receive one.
What is a Jumbo Loan?
A jumbo loan is a mortgage loan that exceeds the mortgage loan limits that are not covered by Fannie Mae and Freddie Mac. Since these two agencies purchase the majority of residential mortgages from lenders and banks in the United States, they set the parameters in regard to how much money can be borrowed through a mortgage loan. Any mortgage loan amount above these parameters is considered to be a jumbo loan.
How Much Can I Borrow with a Jumbo Loan?
While jumbo loan parameters may change from year to year and may be slightly modified in certain parts of the United States, these loans are currently reserved for those who need to borrow anywhere from $417,000 to $2,000,000. In parts of the United States where housing is typically more costly, however, the bottom end is set at $625,000. These include the states of Alaska and Hawaii as well as the territories of Guan and the U.S. Virgin Islands.
How Does the Housing and Economic Recovery Act Affect Jumbo Loans?
President George W. Bush signed the Housing and Economic Recovery Act of 2008 on February 13, 2008. Through this act, loan limits were increased to whichever was less: $729,750 or 125 percent of the median home value within each statistical area. On October 1, the amount was reduced to $625,250. Despite the change implemented by the act, many lenders have not adopted these new limits. As such, loans that are over $417,000 are still considered to be jumbo loans through most lenders.
What are the Drawbacks to Getting a Jumbo Loan?
Since approving a jumbo loan is a higher risk for the lender, these loans tend to have higher interest rates and require a larger down payment than traditional mortgage loans. Furthermore, since the value of a luxury home is largely subjective, many lenders require borrowers to obtain two appraisals.