What is a Jumbo Loan?

When you start to explore your mortgage options, you may hear the term “jumbo loan.”

If you are looking at properties that are more expensive for the area, then this is the loan for you. For instance, if you are considering homes requiring a mortgage that exceeds 417,000, it’s a good idea to find out more about jumbo loans and discuss them with your lender.

What makes a loan jumbo?

A loan is considered a jumbo if it exceeds what is known as the conforming loan limit. The current conforming loan limit for a single-family home is $417,000 for all states except for Hawaii and Alaska, where it is $625,500.

However, if you live in a high-priced market, there are conforming high balance limits available for certain loan programs. These loans have higher interest rates and stricter underwriting requirements than standard conforming loans, but are generally priced lower than jumbo loans. Additionally, limits may be different for multi-unit properties.

How are jumbo loans different?

Qualifying for a jumbo loan usually requires lower debt-to-income ratios, higher credit scores, larger down payments, and higher reserves than conforming loans. Jumbo loans can also have higher interest rates compared to a conforming loan. Differences vary by lender.

What are your options?

A jumbo loan is one potential way to buy a high-priced home, but other options include:

• Increasing your down payment. This is the simplest option. If you can put more cash toward the down payment, you will borrow less. This could be especially helpful to you if the mortgage you are considering is only slightly above the conforming loan limit.
• Obtaining two mortgages. This is also called a combination loan. This option is more complex. It entails taking out a second, smaller mortgage at the same time as the first. By doing this, your first, larger mortgage would conform to the loan limit, and you may avoid some of the increased requirements and higher rates of a jumbo. However, the interest rate on a second mortgage is typically higher than on a first mortgage, so you’ll want to calculate the costs and potential savings carefully. In addition, if you took out two mortgages, you would be responsible for paying both of them each month. So you would need to be sure that you could manage the combined payment. Not everyone will be eligible or qualify for this loan option.

If you are considering a jumbo loan, discuss your options with your lender. Whatever you choose, you should be confident that you will be comfortable with affording the loans you obtain. 

U.S. Homes Sell Faster Than Buyers Can make Offers

U.S. home sales remain brisk, and strong, according to the National Association of REALTORS® and its August Existing Home Sales report, 5.48 million homes were sold on a seasonally-adjusted, annualized basis last month– the highest tally in more than 6 years.

Half of homes sold last month were sold in fewer than 43 days. Buyers are bidding up home prices as U.S. housing continues to support the broader U.S. economy.

Existing Home Sales Have Hit a 6-Year High

Each month, the National Association of REALTORS® publishes its Existing Home Sales report, a sales tally of previously-occupied U.S. homes.

In June, 5.48 million homes were sold on a seasonally-adjusted annualized basis, a two percent increase from the month prior and a 13% increase as compared to one year ago.

It’s the highest reading since February 2007, a month predating last decade’s housing market downturn and its $8,000 federal home buyer tax credit stimulus. Furthermore, home sales are coming at a time of scarce home inventory.

NAR reports just 2.25 million homes for sale nationwide at the end of August, a 6% decrease from one year ago and nearly one-third fewer than during 2010.

At the current rate of sales, the entire stock of U.S. homes for sale would be “sold out” in 4.9 months. This is a big deal because analysts believe that a 6.0-month supply of homes represents a market in balance between buyers and sellers. When supply dips below six months, sellers gain leverage over buyers which can lead home prices higher.

Home supply has been below 6.0 months since August 2012. The average home sale price has climbed 11% during that time.

Median “Days On The Market” Now 43 Days

The August Existing Home Sales report showed more than just “strong home sales”. It also showed that homes are selling much more quickly as compared to recent years.

The August report showed the median Days on Market for homes sold in August at 43 days for all sold homes. More than 4 in 10 homes sold in less than one month.

To put this into perspective, compare the last three years:

• August 2010 : Median 92 Days on Market
• August 2011 : Median 70 Days on Market
• August2012 : Median 43 Days on Market

If we remove foreclosure and short sales from the home sale data, Median Days on Market drops to 41 days.

Homes are selling quickly today. Multiple-offer situations are common and sellers have negotiation leverage over buyers in many U.S. markets. For today’s buyers to have the best chance of getting a “great deal”, a willingness to act quickly is important.

A mortgage pre-approval letter can help, too.

Get Your Mortgage Pre-Approval Letter Today

Give yourself a better chance of winning that home in negotiation. Get a mortgage pre-approval letter which shows how much home you can afford. You should also consider all of your mortgage options.

Low-down payment mortgages via the FHA and VA; the Conventional 95% program from Fannie Mae plus other programs available. Just go to www.0pointloan.com and apply.