The definition of a �Jumbo Mortgage� is a mortgage loan whose total amount is higher than the standard conventional limits.� Of course, with the ever-increasing cost of real estate in our country, it is becoming more and more difficult for consumers to purchase homes that are below this threshold.� This is also not to mention that the defining line between standard and jumbo mortgages is not set in stone, and is actually controlled by two of the largest lenders in the United States, Freddie Mac and Fannie Mae.�
These two organizations actually end up purchasing a rather significant portion of all residential real estate loans in the United States, and the sheer size of their portfolios allows them a powerful influence over the lending industry.� Currently, the threshold for conventional mortgages is $417,000 in the lower 48 states, and $625,500 in the remainder of U.S. territories.� Freddie Mac and Fannie Mae have decided that any loans over this amount are outside their comfort zone, and therefore will not be considered for purchase or servicing.�
For those home buyers in the market for properties requiring financing above the jumbo threshold, they will experience little difference from that borrower�s perspective.� With the number of jumbo mortgages increasing every year, the availability of quality programs to service such a need has also grown.� Today, the programs available for jumbo mortgage loans are nearly identical to those accessible to standard mortgage seekers.� The differences a jumbo mortgage borrower will most likely experience are higher interest rates, higher minimum down payment requirements, and longer available amortization schedules.�
Jumbo mortgages are most commonly held with alternative lending institutions such as insurance companies and private investment groups specializing in real estate lending.� Since these lenders are outside the mainstream, and are sometimes the only option available for borrowers at such a level, the requirements for qualification are sometimes more stringent.�
These alternative lenders may have more strict rules because they are taking on significantly more risk by loaning these larger amounts.� Most lenders agree that homes over the jumbo threshold fall into the �Luxury Home� category.� This segment of the real estate market is commonly subject to additional risks, most notably a lack of consistent appreciation.� Without predictable growth, or superior confidence of resale, the lender�s ability to recoup their money in the event of default is at risk.� There is indeed a cost associated with such risk, and that is translated into higher interest rates.
Because jumbo loans are not just for the wealthy anymore, the lenders providing such financing have had to address the fact that a significant portion of their borrowers will be average middle-income families who just happen to live in an area with dramatic home prices.� Since high real estate prices do not necessarily coincide with the salary increases of the average American, jumbo lenders were the first to offer and implement some changes to what had become a stagnant pool of loan choices.�
The simplest adjustment to come in recent years has been the 40-year, and sometimes even the 50-year, amortization schedule.� These loans are no different that the traditional 30-year loan, they just have lower payments thanks to the longer term.� Also, jumbo lenders will usually have different templates for those borrowers who get ARM�s, and other lenders will have different requirements for jumbo loans that do not exist for standard conventional loans.�
To the jumbo mortgage applicant, the front-end experience is not too different from that of the standard loan applicant.� The bulk of the differences are internal, and will only indirectly effect the borrower in terms of rates and payment totals, and directly effect him with requests for additional verification documents or further independent analysis of the property.