The Current Status Of Jumbo Loans

The Current Status Of Jumbo Loans

The Current Status of​ Jumbo Loans
Are you​ thinking about purchasing a​ house that costs more than $400,​000? Unless you​ are planning to​ make a​ significant cash down payment on​ your new home,​ it​ is​ likely that you​ will need to​ apply for a​ jumbo loan .​
a​ jumbo loan is​ simply a​ home loan for property in​ the​ continental United States that exceeds $417,​000,​ whether the​ funds are used to​ purchase a​ new home or​ to​ refinance an​ existing mortgage .​
For residents of​ Alaska,​ Hawaii,​ Guam,​ and the​ U.S .​
Virgin Islands,​ mortgages are not considered to​ be jumbo loans until they exceed $625,​000.
Jumbo loans are simply mortgage loans made for amounts that exceed the​ limit for conforming home loans,​ as​ determined by Freddie Mae and Fannie Mac,​ government sponsored entities that are the​ two largest players in​ the​ secondary home loan market in​ the​ United States .​
For this reason,​ jumbo loans are sometimes referred to​ as​ nonconforming loans .​
Jumbo loans exceed the​ Federal Housing Administration's (FHA) underwriting limits .​
This means that lenders who extend jumbo loans (1) cannot sell the​ notes to​ either of​ the​ two largest secondary market lenders in​ the​ United States are (2) not eligible for default protection from the​ FHA .​
Not all lenders offer jumbo loans .​
If you​ are planning to​ apply for a​ jumbo loan,​ it​ is​ important to​ disclose your intent to​ your loan officer right away .​
Otherwise,​ you​ could find yourself wasting a​ significant amount of​ your time and that of​ the​ mortgage professional with which you​ are working if​ the​ lender he or​ she works for doesn't process nonconforming home loans .​
Costs and Risks of​ Jumbo Loans
Because jumbo loans are considered to​ be among the​ most risky types of​ mortgage loans,​ they are more expensive to​ get and to​ process than conforming mortgages .​
Lenders who write jumbo loans are assuming greater risk than with traditional loans,​ so they typically charge higher interest rates for these types of​ mortgages than they do for conventional home loans .​
Lenders also incur higher underwriting expenses for jumbo loans than with smaller mortgages,​ and these costs are passed on​ to​ the​ borrower .​
Part of​ the​ reason that the​ cost of​ jumbo loan underwriting is​ so expensive is​ related to​ the​ fact that these loans are not eligible for FHA underwriting .​
Additionally,​ organizations that underwrite jumbo loans are risking losing a​ large amount of​ money in​ the​ event of​ a​ borrower default .​
It can be very difficult for guarantors to​ recover their losses by selling foreclosure homes in​ this price range .​
There is​ a​ limited market for homes in​ the​ luxury price range,​ meaning that there is​ a​ very real chance that a​ foreclosure home won't sell,​ or​ will have to​ be sacrificed for much less than the​ outstanding balance of​ the​ loan .​
Because the​ consequences of​ jumbo loan foreclosure are so serious,​ getting approved for this type of​ loan can be difficult .​
It is​ not uncommon for lenders who do participate in​ the​ jumbo loan market to​ utilize very strict guidelines for approving loans in​ this category .​
Creditworthiness criteria are often more stringent for jumbo loans than for smaller,​ conforming loans that are eligible for FHA backing and can be sold in​ the​ secondary market relatively easily .​
Additionally,​ many jumbo loans require a​ minimum down payment of​ twenty percent.
Impact of​ the​ 2018 Mortgage Meltdown on​ the​ Jumbo Loan Market
The current state of​ the​ mortgage industry makes jumbo loans less appealing than ever to​ investors in​ the​ mortgage industry .​
One of​ the​ biggest concerns regarding the​ current status of​ jumbo loans is​ the​ fact that it​ may be even more difficult than usual for lenders to​ resell these types of​ loans to​ mortgage investors .​
With so many major players reeling from the​ mortgage meltdown of​ 2018,​ the​ additional risk factors associated with jumbo loans are making many private finance and investment firms hesitant to​ invest in​ the​ nonconforming loan market .​
Jumbo Loan Status Implications for Home Buyers
In many parts of​ the​ country,​ the​ number of​ homeowners seeking jumbo loans is​ very limited .​
Throughout most of​ the​ United States,​ the​ median home price is​ less than $250,​000,​ which means that only those shopping at​ the​ highest end of​ the​ housing market are likely to​ be candidates for jumbo loans .​
However,​ in​ many large metropolitan areas,​ average home prices are significantly higher than the​ jumbo loan limit .​
In parts of​ New York,​ California,​ Connecticut,​ Massachusetts,​ and many other states with high costs of​ living,​ it​ is​ virtually impossible to​ find even a​ small home for less than the​ lower limit for jumbo loan programs .​
In such areas,​ even buyers in​ the​ lower ends of​ the​ housing market face the​ challenges of​ jumbo loan financing if​ they want to​ become homeowners .​
Not only do they have to​ deal with the​ highest housing prices in​ the​ country,​ they must also pay a​ premium on​ mortgage funding even when selecting moderate dwellings.

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