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If you’re in the market for a home that costs more than $500,000, you may need a jumbo loan. But do you know what that really means? For instance, did you know that jumbo loans have stricter qualifications than a traditional mortgage?
Read on to find out 3 things you need to know about jumbo loans.
Simply put, a jumbo loan is a type of mortgage that is used to finance a home that is too expensive for a traditional conforming loan. In most places, the maximum amount for a traditional mortgage loan is $510,400, as set by the FHFA, or the Federal Housing Finance Agency. Houses that exceed this specific local limit will require a jumbo loan.
Aptly named, jumbo loans are also known as non-conforming conventional mortgages, and they are considered to be a riskier investment for lenders because these types of loans aren’t guaranteed by Fannie Mae and Freddie Mac. In other words, if you default on your mortgage loan, there is no protection built-in for your lender.
As with traditional conforming loans, there are jumbo loans that are available with either a fixed interest rate or an adjustable rate, and different loans will come with a variety of different terms and conditions.
Since these loans are considered a riskier move for lenders and because the loans are larger, the underwriting criteria for jumbo loans tend to be stricter regarding the following factors:
The biggest benefit of a jumbo loan is that it allows borrowers the opportunity to go beyond the limitations of Fannie and Freddie when shopping for a home. In other words, you can still receive a competitive interest rate and finance your dream home, without the limitations that are imposed with traditional conforming mortgages.
Jumbo loans are also a convenient option for financing a property. Rather than taking out two conforming loans to purchase a property, you can take out one jumbo loan. And lastly, many borrowers prefer to finance a more substantial portion of the home’s cost rather than tying up their cash, making this type of loan an especially helpful tool in financing.
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