Understanding the Term ‘Jumbo Mortgage’

If you’re like most prospective home buyers, you’ll likely apply for a common mortgage loan called a conforming loan. Though the Federal Housing Finance Agency establishes limits on conforming loans, borrowers may still exceed conforming loan amounts in particular cases. When this occurs, the mortgage instrument is called a jumbo mortgage.

As the name implies, jumbo mortgages are for substantial property purchases. Across most of the United States, loans for more than $417,000 are considered jumbo mortgages. In other higher-cost areas of the country, including Hawaii and many cities in California, the jumbo loan threshold is higher – as much as $625,000.

These loans may sound like a dream come true for a buyer looking for a high-end home, but they tend to be quite difficult to qualify for. Loan applicants must often schedule two separate property appraisals, rather than the one required with a conforming loan. Additionally, most lenders require a credit score of at least 700, as well as proof of 6-12 months of cash reserves.

Since jumbo loans pose more risk to the lender in the event the property owner defaults, these home loans also require a higher down payment – sometimes as much as 30 percent of the purchase price. Unfortunately, this makes them unattainable for many consumers.

Still, jumbo loans have begun to grow in popularity in recent years. This is likely due to historic low interest rates, coupled with the fact that interest on loans up to $1 million may be tax deductible for many.

If you think a jumbo loan may be right for you, be sure to shop around. As with conforming loans, lender terms can vary greatly, meaning it’s important to compare available products before choosing the best loan for your needs.

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