Mortgage Products: The Jumbo Loan
Written by: Tony Robinson
Jumbo loans are an investment tool they're not for the average
borrower. Or so we thought. Today, however, thanks to the boom
in real estate prices, and the ever declining value of the
dollar, more and more average consumers are applying for these
jumbo loans, and using them to finance a home purchase.
The most typical area to see the home prices rising to a level
that makes a jumbo loan necessary is in your resort area
housing. Many of these homes have escalated tremendously in
price over the last couple of years, and the loan needs have
risen to all time highs. The jumbo loan has now become a real
mortgage product, not just an investing tool.
Before we get too deep into the real estate market, and the use
of the jumbo loan, perhaps we'd better define the jumbo loan and
the consequences of financing your mortgage in this manner.
The jumbo loan is a loan amount that exceeds $359,651. In fact,
this is the defining characteristic of the jumbo loan. The other
"baggage", if you will, that often accompanies these loans, is
the large amount of paper work, higher private mortgage
insurance, and the higher interest rate. It might also be
interesting to know, that Freddie Mac and Fannie Mae, the two
largest mortgage buyers in existence today, usually establish
these limits, and dictate to many lending companies exactly what
they will buy, and how. It should not need to be mentioned that
these loans present a bigger risk than the other, traditional
loan needs, and therefore must meet some rigorous requirements.
Now, having explained the definition of the jumbo loan, it
deserves to be said that there are alternatives to avoid this
type of loan, and still secure the funding you need to purchase
a home, without using all your life's savings to do so.
The jumbo loan can be broken down into a first and second
mortgage, negating the need for a jumbo loan, and cutting
through all the extra paperwork and interest expense. But,
that's another discussion. Another option homeowners have for
avoiding the jumbo loan trap is to simply put enough down on the
home to keep the amount financed below a certain level.
To further explain the role Freddie Mac and Fannie Mae play in
the determination of the jumbo loan limits and expense, you need
to understand how the mortgage market actually works, and the
role these two companies play in that process. Today, if a
mortgage company loans you money to purchase a home, you sign a
waiver that states that you understand that your loan may be
sold to another servicer. They should simply have you sign a
form that says you know your loan is going to be sold; who is
it? Freddie Mac and Fannie Mae. The mortgage companies find it
necessary to resell your mortgage, in order to make another one.
So, quite naturally, they must abide by the rules established
through the buying companies. Jumbo loans can prove quite risky,
so Freddie Mac and Fannie Mae don't even purchase these types of
mortgages. For the mortgage companies that do, there are set
limits, and they require more information, larger proven income
levels and adequate private mortgage insurance to assure that
the home won't go into foreclosure and auction.
In some areas of the country, there have been increases in the
jumbo loan limits, simply because the housing market and home
prices are so high, every home purchased would be a jumbo loan,
if the limits weren't extended. Most of these areas are resort
homes, vacation homes, and property is scarce.
What is happening today, however, is the growing segment of the
population that really needs the jumbo loan financing in order
to buy their home; not make a business investment. What does
this say about our real estate market, and the value of the
property? Our real estate prices are increasing at an
astonishing rate, and right along with that, is the increase in
products being offered by the mortgage lenders, therefore, it
only stands to reason that we would see an increase in the jumbo
loan market. The current estimate for the jumbo loan market is
generally around 15%; that is still a pretty large hunk of the
About the author:
Tony Robinson is a Real Estate Investor, Webmaster and
International Author. Visit http://www.ezy-mortgage.com/ for his
tips on mortgages.
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