The basics of a jumbo mortgage
A jumbo mortgage is, as its name implies, a really big mortgage.
To be more specific, a jumbo mortgage is one in which the amount being financed is more than the top amount set by the Government Sponsored Enterprises, or GSE.
The GSE is a group of financial companies that
is charged with maintaining access to housing loans and reducing the
cost of those loans so that consumers are able to realize the goal
of home ownership.
As part of their responsibilities, the GSE sets a maximum guideline amount for a mortgage, which has traditionally been about $600,000.00. If a mortgage is higher, it is called a jumbo mortgage.
Of course, we all know that there are lots of houses that cost more than that, so the need for jumbo mortgages has been increasing as the price of housing has increased over the last decade.
Not all banks and lenders offer jumbo mortgages, but there are certainly plenty of lenders who do.
Generally speaking, a jumbo mortgage carries more risk for the lender because the payments are very high and even wealthy buyers may at some time in the future have financial difficulties that make it difficult for them to meet their payments. In addition, high-priced homes generally take longer to sell than do moderately priced houses, so if a homeowner does fall into hardship, it may take quite some time for the owner to get out from under the mortgage loan, so they may have to default on the loan and the mortgage holder may foreclose on the home.
Because of the increased risk, many lenders will require a large down payment on a jumbo mortgage. The interest rate may be a little higher than they would be for a mortgage that falls below the GSE's guideline maximum amount.
It is possible for some homebuyers to purchase a home with very little or even no money to use as a down payment, but this does not generally apply to a person who wants to get a jumbo mortgage. For these larger sized loans, most lenders insist on some money down, but in most other financial ways the process for getting a jumbo mortgage is pretty much the same as getting one for a lesser priced home.
If the home of your dreams is a high priced house in an area of the country that has seen dramatic rises in the prices of real estate, just realize that there is likely a jumbo mortgage available to you if you have a good credit history and can show your ability to repay the loan.
At the same time, you should be prepared for the fact that the loan is probably going to cost you a bit more than a smaller mortgage would, not just in terms of the amount you are borrowing, but also in terms of what it actually costs you for the privilege of borrowing the funds, as down payments and interest rates charged.
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