Jumbo Mortgage Rates: The Basics
If you decide to buy an upscale, expensive home, you may find yourself shopping for a loan that banks and mortgage lenders consider unusually large. But the definition of what constitutes a jumbo loan changes from time to time, so borrowers need to learn about these unique mortgages in order to figure out whether or not they need one. Here's a introduction to jumbo mortgage rates to help you decide.
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Whats A Jumbo Loan?
Within the financial community, the term conventional generally refers to any mortgage that meets the guidelines of Fannie Mae and Freddie Mac, the agencies that process the majority of home loans in the United States. But, as the name implies, jumbo mortgages are larger than normal
. Since they are too high for Fannie Mae to approve according to its standard underwriting procedures, they are unconventional and, therefore, land in their own special category.
Jumbo Vs. Conventional
The criteria that decides what is conventional versus unconventional is announced each year by the Federal Housing Finance Agency. They base their decision on factors such as the average price of homes in the U.S. For 2014, the highest amount for conventional loans to purchase single-family homes is $417,000
. But there are some exceptions. In regions where property is generally much more expensive than the national average, you may qualify for a conventional mortgage up to $625,500. To find out the specific exceptions and exemptions in your area, consult a local lender or the Federal Housing Finance Agency.
Who Needs Jumbo Mortgages?
Once the conventional loan ceiling is set, if your loan needs are higher than that dollar amount, youll be ineligible for a conventional loan. Thats where a jumbo comes in theyre typically used for the purchase of luxury homes and other high-priced, upscale properties
. But sometimes, theyre even required by buyers wanting to buy more moderate or modest homes. Thats due to the fact that in certain parts of the country, where real estate is extraordinarily pricey, even a bungalow can cost a bundle.
That happened, for instance, during the last real estate bull market. As the so-called housing bubble expanded, the median price of homes in locations like Hawaii and California skyrocketed past the half-million dollar mark. As a result, many average homeowners, not just those purchasing mansions, needed jumbos.
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In exchange for funding such a big loan and handing over an exceptionally large amount of cash, lenders will most likely require that you have excellent credit and strong income. They also generally charge you a higher rate of interest than you would otherwise pay if you took out a smaller, more conventional mortgage. If youre in the market for a jumbo loan, it usually pays to shop around, since competing lenders and brokers offer different rates and terms.