What are Jumbo Mortgage Loans?

Autumn Rivers
Autumn Rivers
Costly properties may need to be purchased with a jumbo loan.
Costly properties may need to be purchased with a jumbo loan.

Jumbo mortgage loans are mortgages that have amounts higher than the typical conforming loan limit, which is set every year. These are usually used to buy homes that are more expensive than average, as most lenders do not offer regular home loans that are higher than the conforming limit. Thus, properties that are particularly costly may need to be purchased with a jumbo loan, which typically features a higher interest rate than loans that are under the conforming limit. The main reason for this is that this type of loan is considered high risk for lenders, which is why most banks offering jumbo mortgage loans also require a down payment that is slightly higher than usual. It should be noted that this kind of home loan can be fixed or adjustable, allowing home buyers some options when it comes to the interest rate.

Since the conforming limit tends to change every year, it is not always easy for home buyers to know ahead of time whether they will need this kind of mortgage. This is especially true considering that the limit is a bit higher in some areas, where the cost of living is particularly high. Of course, those considering larger or more expensive homes should usually be aware that they may need to learn more about jumbo mortgage loans in case they have to get one. It is helpful to talk to a realtor who has experience dealing with this kind of loan, as some home buyers may need assistance weighing the pros and cons of this type of mortgage.

Borrowers have a few options when it comes to jumbo mortgage loans, as they can have a fixed interest rate or an adjustable rate. In most cases, lenders require that home buyers put at least some money down before being offered the loan, which can slightly reduce the risk of jumbo mortgage loans for the bank. At the same time, this kind of loan can be advantageous for borrowers since it allows them to make payments on a luxury home, as multiple smaller loans would require them to pay more cash upfront.

Of course, the higher interest rate on jumbo mortgage loans intimidates some buyers enough to try anything possible to avoid this type of mortgage. For example, some borrowers take out one regular home mortgage, in addition to a smaller separate loan. Since the smaller loan typically has higher interest rates, similar to a jumbo loan, borrowers usually pay this off first before making payments on the bigger loan. Thus, they may be able to avoid paying the high interest rates of a jumbo loan by getting two smaller ones instead.

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    • Costly properties may need to be purchased with a jumbo loan.
      By: turhanyalcin
      Costly properties may need to be purchased with a jumbo loan.