Nowadays, you can easily find many lenders willing to offer jumbo mortgages, though the requirements may be harsher than before.
As the name suggests, jumbo mortgages are simply home loans that are larger than normal. This means that they are over the conforming limit, which is also the maximum loan amount that Fannie Mae and Freddie Mac will buy.
Depending on the location, the conforming limit may vary. Most of the times, it’s $417,000, and any mortgage more than that is a jumbo.
In case of most-expensive housing markets, such as Los Angeles, is the amount of home loan is greater than $729,750, then it can be called a jumbo mortgage.
In order to attain a jumbo mortgage nowadays, you must fulfill the given criteria:
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Make a down payment of at least 20 percent for a purchase (or have at least 20 percent equity in a refinance).
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You should document your income.
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Aim at getting an adjustable-rate loan, because fixed-rate jumbos are relatively rare.
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It is required by most lenders that your monthly mortgage payment should not be more than 38 percent of your income before taxes.
Big banks that prefer to keep the loans on their books instead of selling them now offer most of the jumbo mortgages.
This is similar to old-fashioned lending, in which the bank makes money by charging higher interest rates on mortgages than they pay on their customers’ deposits.
As we all know that Interest rates on deposits are low nowadays, thus banks have a chance to make greater profits on jumbo mortgages even when they offer them at low rates. But rates paid on deposits will rise someday.
Therefore, most banks push jumbo ARMs whose rates will predictably rise when rates paid on deposits go up. The most popular jumbos are 5/1 ARMs, which have an introductory rate that lasts five years, and then adjusts annually thereafter.
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