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Understanding Jumbo Mortgages

If you want to borrow a large amount of money to buy a more expensive home - you need a jumbo mortgage.

This page:

• Describes the difference between regular and jumbo mortgage

• Explains how your credit history affects the rate on a jumbo loan

In this section on special mortgages we take a look at zero down mortgages, express mortgages, cash saving mortgages, and more.

What jumbo mortgages are

No, they are not jumbo jets or jumbo fries - but they are larger than normal loans.

Jumbo mortgages are "oversized" loans for home buyers who want a very expensive home or who can't put a lot of cash into a down payment. They can be fixed or adjustable rate mortgages and they have few extra strings attached.

Here's how they work:

Most home mortgages are not held and serviced by the lender who initially provides them. Instead, they are put in bundles and sold on the market to mortgage investors.

However, very large mortgages, called non-conforming or jumbo mortgages, are not treated this way. The two main government-chartered mortgage investment companies, Fannie Mae and Freddie Mac, decide how large a mortgage can be and still be "conforming".

This value changes annually, but right now the upper limit on a conforming loan is $275,000.

What does this mean if you need a mortgage over this amount?

You'll still be able to get it, but it will be a jumbo mortgage and the terms will be stricter and the interest rate higher. Because the lender keeps this mortgage in their own portfolio rather than reselling it, they are assuming a greater risk and it means they'll ask you to pay more for the service.

Sidebar
You can easily apply for a jumbo loan through our recommended prime lender Eloan, and if your credit history is not so hot, through FullSpectrum Lending.

If you have a good credit history, the interest rate you pay on a jumbo mortgage maybe very reasonable - at least if your down payment is large enough. Different lenders have different standards, but many require at least 10% of the home's value in a down payment for a good rate on a jumbo mortgage. For a prime borrower, the interest rate will probably be ¼ to ½ of a percentage point (.25%-.5%) higher.

If your credit is not so good, or your down payment is less than ten percent, you may end up paying a significantly higher interest rate on the loan. There are subprime mortgage plans for borrowers with these needs.

Next: A look at zero down mortgages

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