Many consumers wonder what the difference is between Jumbo loans and conforming loans or loan amounts. There also seems to be confusion about what the Jumbo Mortgage Rates should be in relation to conforming loan rates.
For 2010, the maximum conforming loan limit for a single family residence is $417,000. Anything over that is considered to be a jumbo loan. Loans that are much greater than $1 million are also called super jumbo mortgage loans. There are also "high cost" loans which will not be covered here.
The guidelines and requirements for jumbo loans are often different than conventional loans. You may be required to put more down (lower LTV) and some stated income lenders will not allow Jumbo stated income. However, there are a few who will permit stated income Jumbo loans.
What about the rates? Typically the Jumbo Mortgage Rate will be about a half point higher than what that bank is offering for a conventional loan. For example, one lender in particular who we work with is offering a conventional loan at 5%, a Jumbo Mortgage Rate of 5.5% and an Interest Only Jumbo at 5.75%. Rates change almost daily and they are different from one lender to the next...especially with Jumbo Mortgage Loans. The only way to really know what to expect is to get a FREE JUMBO RATE QUOTE based upon your particular scenario.
Why are the rates higher? Well, there is increased risk on the part of the lenders and their investors. Especially today when the values of the more expensive homes were greatly inflated.
What if you need a loan that is just a little higher than $417k? It would not be a good thing to pay a premium on the interest rate when you are not that far from a conventional loan. What can you do? Of course, you can put more money down if you have it. If you do not have the additional funds to drop your loan balance below $417k, then you can get a first mortgage of $417k and then take out a second mortgage for the difference.
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Have a great day .....Eric - Dream Home Financing