The prevalence of Jumbo mortgages is increasing at a steady rate, so it is important that consumers familiarize themselves with the basic features of these products. Very simply, a Jumbo Mortgage Loan is one with an initial total loan amount over $ 417,000. There are actually very few differences between standard conventional mortgage and a jumbo mortgage that need concern the average borrower, as most of the major differences occur behind the scenes and have no effect on the end result, which is the lender's ability to provide funds, and the rate charged the borrower.
Differences Between Standard Mortgages and Jumbo Mortgages
The main differences with jumbo mortgages are usually higher interest rates, higher minimum down payment requirements, longer amortization periods, and a more in-depth analysis of the proposed property. Since homes valued over the $ 417,000 threshold are considered to be luxury homes, the underwriting of loans to purchase such properties is handled differently, so borrowers can expect to have slightly different requirements.
It is the lender's concern that the luxury residential real estate market is not as stable as the market containing less expensive homes, therefore there could be a higher chance that a property's value will stagnate. This is the reason for the higher minimum down payment requirements, as well as the higher interest rates. Additionally, the lender will usually have an independent analysis of the real estate market in that area to determine the likelihood of appreciation and potential resale.
Longer Amortization Period
Since the traditional 30-year amortization period typically seen in conventional mortgages results in an overwhelming monthly payment amount for jumbo mortgage amounts, lenders have come to offer longer terms to reduce the payment to a manageable level for the borrower. These amortization periods are usually between 40 and 50 years.