What is a Jumbo Mortgage?
Every year, Fannie Mae and Freddie Mac set limits on the amount money that mortgage companies in the United States can loan to people to purchase homes. Loans through these mortgage companies are also referred to as conventional loans. In 2007 Fannie Mae and Freddie Mac set the limit at $625,500 for Alaska, Guam, the Virgin Islands, and Hawaii, and $417,000 for the rest of the country for conventional mortgages. Jumbo loans are designed to fill in the gap for those who need larger loans. Jumbo mortgages are also referred to as non-conforming loans. Jumbo Mortgage Advantages The advantage of having jumbo mortgages available is that you can finance your home purchase through a reputable business that will not charge you exorbitant interest rates. Jumbo Mortgage Disadvantages The major disadvantage of jumbo mortgages is that interest rates are generally a little higher than rates charged on conventional loans.
A jumbo mortgage is any mortgage that is higher than what the US defines as a conventional conforming loan. In the US, this means that any amount borrowed exceeding $417,000 US Dollars (USD) in most states is a jumbo mortgage. The amount is higher in Alaska, Hawaii, Guam and the Virgin Islands where anything above $625,500 USD is considered a jumbo mortgage. In 2008, President Bush signed a law increasing the limit of anything considered conventionally conforming to $729,750 USD. This is a temporary measure, which may expire at the end of 2008. Generally, a jumbo mortgage is considered higher risk, because a larger amount of money borrowed may be problematic if the borrower defaults on the loan. Often in order to obtain a jumbo mortgage, you must pay a higher interest rate, and many banks now require at least 20% down, especially with the foreclosure rates from subprime loans significantly affecting lenders and the banking industry. When possible, putting enough down on a house so that
A Jumbo mortgage exceeds the maximum mortgage limit for a single family house which is $417,000. This maximum mortgage limit is set by two Federal agencies, Fannie Mae and Freddie Mac. What is private mortgage insurance (PMI) Private Mortgage Insurance is required by lenders when your mortgage amount (LTV) is greater than 80% of the appraised value of the house. When purchasing a house if you put less than 20% down payment you are required to pay mortgage insurance. As a rule, the lower the down payment or the higher the LTV, the more expensive is the mortgage insurance. A way to avoid Private Mortgage insurance is to get a 1st mortgage at 80 LTV and get a 2nd mortgage for the difference of the loan amount.
