For a first time homeowner, a jumbo loan can be a confusing concept. The term was coined about thirty years ago, and it applies to any mortgage that’s available above the ‘conforming’ limit. Conforming loans are those that can be bought by Freddie Mac or Fannie Mae, and jumbo loans are available to any homebuyer that needs more money to complete their purchase.
How a Jumbo Mortgage Works
Despite its name, a jumbo loan works like any other mortgage–the only real difference is the size of the loan. Freddie Mac and Fannie Mae set conforming loan maximums annually; the current maximum is $417,000 for a single-family home. Some parts of the country have higher limits, and if you need a jumbo mortgage, you’ll need to find the right lender. The qualification process and documentation are similar to those for regular mortgages, as are income, asset and debt verification processes.
Types of Jumbo Mortgages
Being identical to conforming mortgages, homebuyers can choose an adjustable or a fixed-rate mortgage. Even in today’s tighter credit environment, you may only find a couple of interest-only loans that will get you qualified based on your debt and your income. The only real difference is the loan amount–with a jumbo mortgage, the least you can borrow is $417,000.
Terms and Rates
Because of their size, jumbo mortgage rates are higher than those for conforming mortgages. The difference in rate is because the lender takes on an additional risk by approving the larger loan. For instance, if the prevailing rate is 5%, you will likely find a jumbo loan at about 5.25-5.4%. Jumbo adjustable rate mortgages have starting rates with that same slight difference. Other loan terms such as repayment time, margin, index or interest rate caps are similar to those for conforming loans.
Lenders Offering Jumbo Mortgages
Many mortgage lenders and banks offering government and conforming loans through the VA and FHA also offer a jumbo loan purchase in NJ. Some lenders are jumbo loan experts, and some offer mortgages of over $1 million. Once you decide you’ll need a jumbo loan, do a qualification check to determine whether you qualify.