A Large Mortgage to Finance a More Expensive House
As its name suggests, a jumbo mortgage is an extremely big mortgage. The Government Sponsored Enterprises (GSE) establish the standards for jumbo loans, and a jumbo mortgage is one in which the loan amount exceeds those standards. A consortium of financial institutions known as GSE keeps home loans available and keeps their rates low so that more people can afford to buy houses. Because this is the threshold that GSE has established as part of its responsibilities, the conventional guideline amount for a mortgage by GSE has been $600,000.00.
A mortgage is considered a jumbo mortgage if its principal amount is more than this. Given the abundance of properties priced higher than that, it is not surprising that jumbo loans are in high demand, as home prices have risen in tandem with the supply of these loans. While jumbo loans are available from many lenders, not all of them do. The hefty monthly payments associated with a jumbo mortgage make the loan a riskier investment for the lender, regardless of your current financial status.
Also, not many people can afford homes with higher prices, so if the homeowner ever has money problems, it might be hard to get out of their mortgage and the loan could go into default. This means that homes with higher prices often take longer to sell than homes with lower prices. A greater down payment is often required by lenders for jumbo mortgages due to the increased home prices and potential financial difficulties.
Mortgages with balances greater than the GSE's maximum guideline level will incur higher interest rates. A jumbo mortgage has a higher level of risk for the lender than a conventional mortgage, which means that a borrower with a smaller down payment will not be approved. Although a greater down payment is typically required for jumbo loans, the application process is otherwise rather comparable to that of a conventional loan for a less expensive home. Keep looking; even if the home you have discovered has taken a hit from rising housing prices, you may still be able to get a jumbo mortgage if your credit is strong and you can prove you can afford the payments.
Contrarily, you should be ready to pay a bit more than you would for a smaller mortgage, both in terms of the total amount borrowed and the interest rate. You should not let the price put you off buying the house of your dreams if you find one you love and are confident in your ability to pay for it.
