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Jumbo Loan Mortgage - Jumbo Mortgage Loans

mortgages rate limit housing

During the early 2000s, the housing prices in the United States rose sharply, and many consumers chose to take out increasingly large mortgages in order to keep up with the rising prices. While most mortgage amounts in the United States fall into a range commonly known as the “conventional conforming loan limit.” In 2010, this limit in the contiguous United States is $417,000 and in many cases it is as low as $215,000. The rate is set by the government housing agencies Fannie Mae and Freddie Mac because these agencies purchase most home mortgage loans in the U.S. A case in which a mortgage exceeds the conventional limit so that Fannie Mae or Freddie Mac cannot purchase it in full is known as a jumbo mortgage or jumbo loan. Mortgages of these type in the early 2000s were sometimes interest only loans or had a 40 year or more term, and as prices dropped in 2007 and 2008, many of these loans were “under water,” meaning that the amount owed on the property was more than the property is worth. Also, the default rate on jumbo mortgages increased by about 200%. By February 2010, one out of every ten jumbo mortgages was overdue by more than 60 days. Therefore, in light of the recent troubles in the housing market, mortgages of this type are rare, but they are still not unheard of.

Although the limit was temporarily increased to over $700,000 in 2008-2010, few mortgage companies were willing to exceed the conventional standard, the rate was lowered to $417,000 in 2010.
This means that unless you live in Alaska, Hawaii, Guam, the U.S. Virgin Islands, or have some special circumstances, it is much more difficult to get a mortgage loan for more than $417,000 and in many cases will not be able to exceed $200,000 or so.

In most cases, jumbo mortgages are taken out for high end and luxury properties. Because of the possibility of large increases and decreases in the values of these properties, jumbo mortgages can be risky for lenders. Because of this risk, jumbo mortgages often have higher interest rates than conventional mortgages, with rates for jumbo mortgages usually between 0.25% to 0.50% higher than traditional rates. Closing costs for jumbo mortgages are also usually more expensive because the high loan amount results in higher commissions and fees.

There are still many areas of the country where it is difficult to get a single family house for less than $250,000. If you are looking for a property in one of those areas, have a good income and good to excellent credit, you could be a candidate for a jumbo mortgage loan. While these loans do have a higher interest rate, the difference between the standard rate and the jumbo rate is not as high as it was at the start of the housing crisis in late 2007, so the loan is not as cost prohibitive as it was then. Because of the complexity of jumbo loans, however, it is best to consult with a real estate agent about the conventional mortgage limit in your area and whether you might qualify for a jumbo loan before starting to shop for a new house.

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