If you are looking to purchase a home that has a very high price, you will likely need to look into obtaining a special loan that is referred to as a jumbo loan. In order to be considered in this category, the amount you are borrowing has to be above a certain pre-determined amount. This amount can vary according to the economy, but is currently set at about $417,000. If the borrowed amount is more than one million dollars, it is generally referred to as a super jumbo loan. They are generally capped off at six million dollars.
These types are so high that Freddie Mac and Fannie Mae will not back the entire amount of the loan. With standard notes, these organizations act almost like insurance to the lender and provide protection if the borrower defaults on the note. Without their backing, lenders are taking a greater risk when lending jumbo loans. Since lending larger amounts of money involves taking a great risk, lenders typically impose higher interest rates than with regular mortgages. If you have excellent credit, however, you may be able to get one of these loans without having to pay a higher interest rate.
Understanding Jumbo Mortgages
These are loans that are more than $417,000 but less than one or two million dollars. In some areas, such as the U.S. Virgin Islands, Alaska, Hawaii, and Guam, loans of more than $625,000 are considered jumbo mortgages. In addition, although jumbo loans can be requested in any state, they are generally more common in states such as California and New York where housing costs are much higher.
There are four main types of jumbo mortgage loans that you can apply for. These include:
- Adjustable Rate
- Fixed Rate
- Interest Only
- No Down Payment
If you are not certain that you will be staying in the home for a long period of time, an adjustable rate may be right for you. The rates on these loans start off very low and then increase or decrease according to fluctuations in the prime rate. If prime rate interest rates fall, your monthly house payment will also decrease. If the prime rate increases, however, your home payment will also increase.
Fixed rates are different in that the interest you pay remains the same throughout the lifetime of your loan. As a result, your monthly payment remains the same as well. This makes it easier to create a monthly budget since you know exactly what your house payment will be each month.
An interest only program will help you keep your monthly payments down, but you won't be working at paying down the principle. This is because the money you send each month goes only toward paying your interest, which also means you will not build equity in your home.
As the name implies, a no down payment jumbo mortgage is a loan that does not require a down payment. As such, the lender lets you borrow the full amount needed to purchase the home.
Understanding Super Jumbo Loans
If you are taking out a loan of more than one or two million dollars, you will need to take out a super jumbo. While these can be taken out in any state, they are particularly common in California because over 25% of the homes in California have a price tag of one million dollars or more.
The underwriting process involved with super jumbo loans is quite strict because lenders are taking such a big financial risk. In order to be approved for one of these, it is best to have excellent credit. At the same time, having a poor credit history does not mean it is impossible to get one of them. Rather, you will likely have to pay additional fees and a higher interest rate.
Whether you are looking for a jumbo or a super jumbo, FiveStarHomeMortgage can help. Contact us today to talk with one of our friendly representatives!