The real estate market in the United States is in a constant state of ebb and flow. Like every other aspect of an economy, markets are always subject to change. The housing crisis of the late 2000's affected many people in devastating ways but understanding the why's of that trend and how it's changed can be confusing for many people, even those who work in the real estate market.
The United States government has a great deal of control on how the process of home loans work and they're also responsible for many special programs to help low income and first time home buyers to secure a reasonable mortgage they can afford. However, the reach of the government goes far beyond this.
For example, amongst the many varieties of mortgages available is one aptly named the jumbo loan. It can be viewed as simply as it sounds; it's a mortgage for a particularly expensive home. However, the nuances of this particular type of loan are much more intricate and complex than one might initially think.
If you're in the market for a high dollar property and are considering your options learn more about why a jumbo loan might be the right one for you.
Home Mortgages Explained
Explaining federal home loans is a tricky business even for professionals. But for the borrower the ins and outs of federally backed loans can sound like gibberish. The government entities responsible for securing home loans are called Fannie Mae and Freddie Mac. These arms of the government buy loans from outside investors and then resell them to home buyers.
It sounds simple but it really isn't. These loans have to meet very strict regulations regarding loan amount, credit worthiness, and the underwriting terms. In addition, there is a cap placed on these types of loans so buyers who are purchasing a home with a value of more than about $400,000 and want to borrow the majority of those funds would not be able to do so through Fannie Mae or Freddie Mac programs.
Bring in the Jumbo Loan
For those who want to purchase a home that exceeds the value caps put into place by the government then a jumbo loan is usually the first choice. The loan amount varies by region and housing market but in most areas of the United States the loan would begin to apply at $417,000. In areas like San Francisco, Los Angeles, New York City, and most of the state of Hawaii that amount can be as high as $721,000.
Since the housing market in the United States has begun to recover following the subprime mortgage crisis in the late 2000's more and more jumbo finance loans are being issued as people can better afford a larger, more expensive home.
Do You Qualify for a Jumbo Loan?
Jumbo loans used to be relatively easy to secure but today you'll need to be prepared to apply just as you would any other loan. The first rule of thumb, however, is to shop around. Some home buyers have found that interest rates vary widely on these loans and can be as little as 4 percent or as high as 15 percent, although these rates are usually adjustable. Fixed-rate jumbo loans are hard to find, so it pays to do some legwork.
Additionally, you'll need to bring a sizeable down payment to the table which is typically 25 percent. You'll also need a near perfect credit score, and you'll need to prove that your monthly mortgage payment won't exceed 38 percent of your monthly income before taxes. However, for people in the upper income brackets none of this should be a problem.
If you have the money, the credit score, and the need or desire to purchase a home that is located in a high value area or you simply want a home that comes with a hefty price tag, then a jumbo loan is the best option, unless you can pay for it in cash. While these loans have changed a bit over the last few years, they are still the best option for high dollar buyers. If you're in the market for a luxury home with a price tag to match then the jumbo loan is right for you.
