Jumbo Mortgage Loans
A jumbo mortgage is just what it sounds like–it's a home loan that is higher than normal. In most of the US, any loan exceeding the amount of $417,000 is considered a jumbo mortgage (the amount is higher in Alaska, Hawaii, Guam, and the Virgin Islands).
From 2003 to 2007, when the housing market was at its peak, borrowers easily got jumbo mortgages without having to verify the income stated on their loan applications. Many lenders gave jumbo loans to homebuyers putting just 5 percent down–that's like buying a half million dollar home with just $25,000 down, and borrowing the remaining $475,000. However from 2007, as prices fell and the number of foreclosures rose, lenders turned away from providing jumbo mortgages.
Generally, a jumbo mortgage is considered higher risk, simply because the large amount of money owed is much higher, and can be very problematic should the borrower default on the loan. For this reason, jumbo loans tend to have a higher interest rate, and these days banks will typically require at least a 20 percent down payment. You will be required to document your income, and your monthly mortgage payment can be no more than 38 percent of your income before taxes. Additionally you'll need a credit score of at least 720, with many banks requiring an average of 760.
While it's not impossible to qualify for a jumbo loan, even with the more stringent requirements, most experts would advise to save enough for a down payment to get your loan under the jumbo mortgage range. For those that live in expensive housing markets, such as New York and California, this can be difficult to avoid as standard homes cost well above that amount. So if you must take out a jumbo loan, it's crucial you shop around to get the best rates and conditions. Usually jumbo mortgages are about 1 percent higher than regular, so aim to come under that general marker.
In short, while jumbo loans are attractive to buyers because they allow for a more luxury home, it's important to borrow within in you means. However if a jumbo mortgage is what you need, then remember to do the necessary homework to meet the stringent requirements, and to talk with several lenders before settling on the best one.