Have you ever heard of a jumbo loan? Jumbo home loans are loans that are larger than $417,000. This is an amount that is set by the US government and is an amount that can be changed at any time. The big difference between a conventional loan and a loan that is considered to be “jumbo” is that they have a much larger interest rate. One reason is that lenders consider homes above that price to be “luxury” homes…though in many cases, especially in areas of Florida, these homes may not really meet most definitions of “luxury”. However, these homes do tend to be harder to sell, so the lender is taking more risk which means owners need to take more liability. Here is what you need to know about jumbo home loans:
A Jumbo Loan Will Cost You More
Because the lender is taking more of a risk with these loans, you will find, when you get a jumbo loan, that you will be paying more interest. This can actually be a significant increase, something that many borrowers will not like. On top of that, you will find that it is almost impossible to get financing in the form of a jumbo loan without adding some type of down payment. Generally, even with outstanding credit, you can be required to put 10% of the price of loan down from the start.
A Jumbo Loan May Be Difficult to Obtain
Most lenders that offer jumbo loans do not have the safety net of government sponsored agencies to sell the loans to after closing. As a result, they rely on private investment groups or insurance companies and will likely have stricter requirements than other lenders. On top of this, you will find that these lenders will have more stringent qualifying parameter and terms that are to the benefit of the lender not the borrower such as balloon payments after five years even though the amortization period is 30 years.
Qualified Mortgage
As a result of Dodd-Frank, on January 10th, 2014 a new rule was implemented by the federal government called QM or Qualified Mortgage. This day changed the world of Jumbo mortgage lending.
While the intent of the law was good forcing lenders to use a stricter “ability to repay” rule, when spread across the Jumbo lending community common sense goes to the wayside. For example, with an 800+ credit score, a substantial net worth and residual income of $30,000 per month, this all but assured a prospective borrower an automatic approval. Now if the borrower exceeds the income ratio of 43%, it is an automatic reject. That’s right millions of dollars in the bank, clearly the ability to make the payment and an automatic reject based on the new rule. A counter offer from lenders requesting additional down payment of several hundred thousand dollars will become common place.
Alternatives and Help
Finally, you should know that a jumbo loan might not be your best choice when it comes to lending options. You might have alternatives though, but they would be dependent on your credit, your financial history and other considerations.
There are some items that one must consider when persuading a jumbo loan. How much money does one have to put down? What kind of payment options and terms are considered? What are the risks that one may not be aware of? These questions can easily be answered by a professional in the industry that can help and also offer a solution.
There are a variety of alternatives, some may be in combination with a traditional loan or jumbo loan, so may be a completely different financing. Before you make a decision, it is important to know all your alternatives, risks, and considerations.
To find out if you might be qualified for these options it is best to contact a financial services company that works with people who have unique situations.
