Factors to Consider in a Jumbo Loan

Buying a home is a big step for anyone, but can be especially difficult for someone who is seeking a jumbo loan. A jumbo loan is a loan for a home or property above the conforming loan limit. The conforming loan limit is the largest loan eligible for purchase by the Fannie Mae foundation. The conforming loan limit for 2006 was $417,000.00. This is for a single family dwelling purchased in United States, Puerto Rico and the District of Columbia. For homes purchased in Alaska, Hawaii and the Virgin Islands, the conforming loan limit is $625,000.00. Mortgage loans above these limits are considered jumbo loans and do carry a higher interest rate. These loans are not sponsored by the government; therefore they are considered higher risk.

Even more expensive are super jumbo loans which are for mortgages above $1,000,000.00. These loans, like jumbo loans are considered much higher risk and carry higher interest rates and penalties. Super jumbo loans are not as common as jumbo loans and many borrowers seek them for the tax write off that one can get from having a mortgage.

Jumbo and super jumbo loans can not be found at most banks, borrowers often times look to the internet for lenders, because it gives them the ability to find a wider variety and more competitive rates. These loans are most prevalent in states such as California, where real estate is some of the highest in the country. Many lenders will not lend above $650,000.00 or have very stringent rules for amounts above $650,000.00.

The availability of these loans also depends on the location of the lender and the property. If a borrower lives in a place like San Diego California where the average cost of a 2200 square foot home is $627,938.00, there will be several lenders willing to give them a jumbo or super jumbo loan. However, if a borrower lives in a rural area where the average cost of 2200 square foot home is $190,000.00, there are not going to be that many lenders willing to lend such a large loan in a market that does not have that kind of demand.

When borrowers seek loans for such large amounts, it is important to shop around for the best rate. Although it was stated earlier that super jumbo loans were often sought just for the tax write offs they offer, borrowers seeking jumbo loans often have a real need. If they live in San Diego, like the above example, they are not often seeking a luxury home or a second home, they are seeking what is considered a middle class home in that area. Borrowers could easily be led into a rate that is too high for them; by taking the first rate they are offered.

By : ABC Loan Guide