Jumbo loans were only considered for McMansions in the past. However, the oversized loans had become an increasingly profitable option for entry-level home buyers in various parts of the country.
Jumbo loan mortgages were those for figures above the government-sponsored loan limits. In many parts of the country, that meant about $417,000, but in districts where living costs were extremely high, the threshold jumped to $625,000.
Jumbo loans also had a reputation for being costly and hard to acquire, causing many eligible buyers to put them aside and opt for a more traditional loan. These Conforming loans met certain guidelines pointed out by Fannie Mae and Freddie Mac in terms of the degree of the loan, the borrower's debt-to-income rate, and documentation. These loans usually had lower interest rates than non-traditional loans such as jumbos.
While past jumbo loans had presented more hindrances to home buyers, recent trends in lending had made them easier, according to a report from Realtor.com. In costly cities with a thriving housing market, home buyers were hard-pressed to find much housing inventory that required a mortgage within the limits of conforming. For example, if you lived in San Francisco, where the average home price topped $1 million, most home buyers qualified for jumbo loans.
In other areas of the country, rising home values had pushed even middle-class properties into jumbo territory. Quicken Loans chief economist Bob Walters said that in most markets, the first-time home buyer will be looking for a jumbo loan, according to a report from Racing Nation.
Jumbo loans used to require down payments of about 30 percent to secure. That was not always the case. Lenders who competed for qualified buyers had loosened up on that norm, with most banks offering jumbo loan financing for as low as 10 percent down. Also, unlike with conforming loans, placing less than 20 percent on a jumbo loan does not automatically require the need for expensive private mortgage insurances.
