Benefits of a Jumbo Mortgage Loan

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Author: Allan Young

A jumbo mortgage loan is for an amount higher than the maximum loan amount established by Freddie Mac and Fannie Mae, the two government sponsored mortgage corporations. The caps are set at the beginning of each year, based on average market prices; as of now a jumbo loan is defined as a loan for more than $417,000, although the amount is higher in Hawaii and Alaska. If a jumbo loan isn’t enough for your needs, it’s also possible to take out a super jumbo loan for an even higher amount.

It can be difficult to find a lender for a jumbo loan â€" because of the general downturn in the housing market, many specialized lenders have either gone out of business, or have stopped offering this type of loan. However, it is still possible to qualify for and take out a jumbo loan; although because of its higher monthly payments, you should always make sure that you can comfortably afford a jumbo loan.

One big advantage of a jumbo mortgage loan is the fact that it allows you to buy a more expensive home. You may be considering taking out a jumbo loan if you have always wanted that beach-front condo or that vacation home in the mountains. And in some parts of the country, such as California, Hawaii, and New York City, it is almost impossible to buy a home without taking out a jumbo mortgage loan. The only realistic alternative to a jumbo loan would be a huge down payment, which many home buyers simply don’t have.

A jumbo mortgage loan allows a homebuyer to buy a more expensive home if he or she has a high paying job and the salary to afford more â€" but not enough saved up for a substantial down payment. A buyer who is making several hundred thousand dollars a year can afford the monthly payments on a half million dollar home, without having to wait to come up with a large down payment. It’s an effective way to buy a home and start to build equity, rather than rent a home. Taking out a jumbo mortgage loan can also help to improve your credit score. If you take out a jumbo loan and manage to make the payments on time, your credit score will almost certainly shoot up. In fact, it can be one of the most effective ways to build up a high credit score â€" which can also open the doors to other loan options at competitive rates. However, make sure you can actually afford the high monthly payments â€" don’t be one of the many people who default on jumbo loans.

One of the advantages of a jumbo loan is that it can allow you to move into the home of your dreams immediately, without having to move into a starter home and stay there for a few years. If you are in a position financially to afford the higher monthly payments that come with a jumbo mortgage loan, you can purchase that bigger home that you don’t necessarily need now â€" but may need in a few years. If you are planning to get married or have a family, this may be the option for you.

Although jumbo mortgage loans come with much higher monthly payments, they still offer much of the flexibility of a regular loan. You can take out a jumbo loan with a fixed rate, or if you are planning to refinance or anticipate that rates will go down, you can take out an adjustable rate mortgage. A jumbo loan doesn’t require that much more paperwork than a regular loan and closing costs tend to be about the same. And just because you are applying for a jumbo loan doesn’t mean everything will take longer â€" in general, the time taken to close the loan will be about the same.

One of the benefits of a jumbo loan is that it can be refinanced in much the same way as a more conventional loan. A jumbo loan can potentially be refinanced with less than 20% equity, depending on the rules in your state â€" some jumbo loans even allow up to 97.75% financing. In some parts of the country, jumbo loans are available as FHA loans, which allow a cash-out refinance for up to 80%; FHA jumbo loans also have the benefit of being available with a lower down payment. Although interest rates in general tend to be higher for a jumbo loan, lenders can sometimes reduce the effects of this by breaking the loan up into two separate loans.

Clearly, a jumbo mortgage loan isn’t for every homebuyer. However, it can be a great option to allow you to buy a more expensive home and without necessarily having to put down a large down payment.

Allan Young is a freelance writer who writes about real estate, offering tips about how to refinance loans .