A Jumbo, or non-conforming loan, is required for financing on a mortgage that is higher than the conforming loan limits set by Fannie Mae and Freddie Mac.
How Do Lenders View Jumbo Loans?
Mortgage bankers / lenders consider jumbo loans to be a riskier proposition than conventional loans due to the fact that a larger sum of money is ‘bet’ on a single transaction vs spreading that same dollar amount amongst multiple transactions.
For example, there is a big difference between lending on one $3million loan vs ten $300,000 loans. On several smaller loan amounts, the lender is essentially spreading its risk over multiple properties and borrowers. This risk associated with Jumbo mortgages is why the mortgage rates and down payment requirements are typically more than a traditional conforming loan.
The jumbo and super-jumbo mortgage financing industry is always in a state of flux as the supply and demand for these particular loan products can change due to outside market conditions.
A good rule-of-thumb to remember when trying to qualify for a non-conforming loan is to have your paperwork organized, as well as a good explanation prepared for anything that may raise potential questions by an underwriter about your ability to repay the mortgage over the term.
Why are rates higher with Jumbo Mortgages?
The rates are typically higher with Jumbo Mortgages due to the amount of risk associated with financing a larger property that may be more difficult to sell and recoup losses in the case of a default.
What are the down payment requirements for Jumbo Mortgages?
Typically, down payments for non-conforming loan amounts can be 20% or higher of the purchase price. Generally speaking, the larger the purchase price, the more money the borrower will have to invest as a down payment.
Do I have to pay Private Mortgage Insurance on a Jumbo Mortgage?
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