A jumbo loan is a mortgage with an amount exceeding the loan limits set by the OFHEO. This means that it is not eligible to be supported by Fannie Mae and Freddie Mac. This may be suggested to you by your lender for some reasons, but it's not exactly the best option.
Getting a home loan is really difficult on any market. And if you're looking to buy in locations with higher real estate prices, it is definitely more difficult.
Usually, lenders do not provide loans that are beyond the loan limits conformed by Fannie Mae. But if you have a strong credit score and a low debt records, your lender may suggest you get a jumbo loan. It can be a good and a bad thing for you. So please consider these cons before you decide if it would be all worth it or not.
1. Less lenders to consider
One of the main reasons why sticking with a non jumbo loan is having lots of options when it comes to lenders. Jumbo loans have more risks compared to normal loans. This means that the government won't buy jumbo mortgages from lenders that gave them out. Meaning institutions that released them would use their own money if people fail to pay for them.
2. Jumbo loans are more expensive
If you are sticking to normal loans, there are lots of institutions to choose from, meaning, the prices are competing with each other. This would eventually mean lower interests rates. It's the exact opposite when it comes to jumbo loans. And since risks are higher in jumbo loans, interest rates can be expected to be higher than normal.
3. Jumbo loans are not easy to achieve
Since the risks are high, the process is more stressful, and only a chosen few are given the chance to get a jumbo loan. Extra requirements may be asked of you and multiple appraisals may be necessary. So if possible, try to avoid jumbo loans to help your future financial stability.
