One of the key concepts that borrowers would do well to know is the term “jumbo loan.” Jumbo loans are a non-conventional type of loan, having a loan amount exceeding the conforming loan limits implemented by the Office of Federal Housing Enterprise Oversight (OFHEO).
Due to their nature, major agencies such as Fannie Mae (FNMA) or Freddie Mac (FHLMC), would not dare to purchase, guarantee, or even securitize. FNMA and FHLMC are two of the most powerful institutions in the mortgage market. Thus, lenders aspired to sell their mortgage obligations to these institutions so that they will be able to obtain sufficient finances leading to more business ventures. However, because a jumbo loan doesn’t fit the guidelines of FNMA and FHLMC, prospective borrowers tend to pay extra in order to assist lenders to withstand any risk they encounter in the financing.
Jumbo loan is a category intended for wealthy affluent citizens to obtain a dream home or purchase investment property. However, middle income individuals also aspire to have a luxury home with an expensive price tag; thus these people will depend on jumbo loan financing in order to purchase the said home. Basically, mortgage loans beyond $417,000 are considered jumbo loans but there are countries that still allow borrowers having this loan amount to be categorized under conventional loan.
Typically, a jumbo loan is more expensive compared to other kind of loan available in the market. Jumbo loan interest rates are truly higher when compared to a standard conventional loan. In fact, in the long run, a person will pay more in the interest throughout the term of the loan. Also, borrowers are imposed with additional fees if they intend to refinance their mortgage. In order to give the homeowner the sufficient period to buy an expensive home, the borrower and lender must both decide on an agreement allowing an extended duration of the loan. New homeowners will tend to pay more in interest rate charges as it is a riskier investment to the lender, because if a jumbo mortgage loan defaults, it could prove to be an arduous task to sell a luxury residence quickly for full price.
Knowing the nature and complexities of availing mortgage insurance, a person needs to be wise and reasonable in choosing a type of loan in purchasing a home. There are instances when an individual should secure a jumbo loan in order to buy their dream home, it is entirely up to the person whether he/she is responsible enough to take on the rates and risk. A jumbo loan is difficult and challenging to handle, and the delinquency rate tripled over the course of 2009, and by February 2010, almost 1 in 10 jumbo mortgages were considered ‘seriously delinquent.’