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How to Get a Jumbo Mortgage

What it is

A jumbo mortgage is a mortgage with a loan amount above conventional loan limits. Jumbo mortgages apply when agency limits don't cover the full loan amount. Fannie Mae and Freddie Mac are large agencies that purchase the bulk of residential mortgages in the United States. They set a limit on the maximum dollar value of any mortgage which they will purchase from an individual lender. Currently the limit for the jumbo mortgage is $417,000. Other large investors, such as insurance companies and banks, step in to fill the need with maximum mortgage amounts in the $1 million to $2 million range. The average interest rates are typically greater than normal for conforming mortgages and depend on property types and mortgage amount.

Jumbo mortgage loans are a high risk for lenders because if a jumbo mortgage loan defaults, it is harder to sell a luxury residence quickly for the full price. Luxury homes are more vulnerable to market highs and lows. Lenders prefer to have a higher down payment from jumbo loan seekers. The interest rate charged on jumbo mortgage loans is higher than a loan that is conforming due to slightly higher risk to the lender. It varies between 0.25 to 0.5 percent.

Who it's for

Jumbo mortgages are for people who want to buy a modest ranch or vacation house or other high end luxury residences but cannot because of inflated housing prices. The new loans are either of 40- or 50-year amortization or an interest only option. They allow the jumbo loan borrower to pay the loan back over a longer period of time or to defray any repayment of principal for a few years. In some cases the banker makes a larger profit if the loan takes more than 30 years to repay.

What you need to do to apply

In order to obtain a jumbo mortgage, borrowers should contact a local jumbo mortgage agency or investor and inquire about their options.

Apply for a Jumbo Mortgage

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