The Facts On Jumbo Mortgage Loans
If you want to purchase a home, you will more than likely have to take out a mortgage loan to cover the cost of the house. Every mortgage has basic terms and guidelines. However, if you want to purchase a home that is considered a high priced home, there are different rules that apply to the mortgage. This type of mortgage is called a jumbo mortgage.
There is a great deal more risk for the lender when they issue this type of loan. Most of the homes that fall into this high priced category are considered high-end luxury homes. Obviously, these types of homes are large, beautiful, and sometimes extravagant. Because of this, they are often harder to resell. Many people looking to spend that kind of money on a home are looking to customize their own home, and not necessarily buy one that was already designed and built.
Banks understand that the harder a home is to sell, the greater the likelihood that they will get stuck with a home in foreclosure if the borrowers ever default on the loan. Banks absorb some of the risk involved in financing these expensive homes by attaching specific rules to the loans.
Clearly, the larger and more expensive homes are chancy for banks to finance. So why do banks still consider issuing these types of mortgages helping people buy expensive homes? Banks make it worth their while by issuing the loans only after the borrower has put down a large down payment.
Borrowers are required to put down a large down payment if they want to qualify for a jumbo mortgage. This way, even if the home loses value, the bank can still recoup some of that cost if the borrower defaults on the loan because they have the down payments. Depending on the mortgage climate, anywhere from twenty to fifty percent of the cost of the home is required for a down payment.
The final way banks try to absorb some of the risk of the loan by making money is to attach high closing costs to the mortgage. Usually, closing costs are a percentage of the price of the home, so naturally, a high priced home is going to have higher closing costs.
Unfortunately, it used to be easier to avoid taking on a jumbo mortgage than it is now. This is because the cost of housing has sky rocketed over the past few years. In areas like California and Washington D.C., even modest homes are high enough in price that banks are requiring these types of mortgages for the homes.
For those of you who have expensive taste and want to own an expensive home, realize that you will have to take on a jumbo mortgage in order to purchase the home.
There is a great deal more risk for the lender when they issue this type of loan. Most of the homes that fall into this high priced category are considered high-end luxury homes. Obviously, these types of homes are large, beautiful, and sometimes extravagant. Because of this, they are often harder to resell. Many people looking to spend that kind of money on a home are looking to customize their own home, and not necessarily buy one that was already designed and built.
Banks understand that the harder a home is to sell, the greater the likelihood that they will get stuck with a home in foreclosure if the borrowers ever default on the loan. Banks absorb some of the risk involved in financing these expensive homes by attaching specific rules to the loans.
Clearly, the larger and more expensive homes are chancy for banks to finance. So why do banks still consider issuing these types of mortgages helping people buy expensive homes? Banks make it worth their while by issuing the loans only after the borrower has put down a large down payment.
Borrowers are required to put down a large down payment if they want to qualify for a jumbo mortgage. This way, even if the home loses value, the bank can still recoup some of that cost if the borrower defaults on the loan because they have the down payments. Depending on the mortgage climate, anywhere from twenty to fifty percent of the cost of the home is required for a down payment.
The final way banks try to absorb some of the risk of the loan by making money is to attach high closing costs to the mortgage. Usually, closing costs are a percentage of the price of the home, so naturally, a high priced home is going to have higher closing costs.
Unfortunately, it used to be easier to avoid taking on a jumbo mortgage than it is now. This is because the cost of housing has sky rocketed over the past few years. In areas like California and Washington D.C., even modest homes are high enough in price that banks are requiring these types of mortgages for the homes.
For those of you who have expensive taste and want to own an expensive home, realize that you will have to take on a jumbo mortgage in order to purchase the home.
About the Author:
Sarah's worked has helped hundreds of people to learn about mortgages for people with bad credit and about other types of interesting and creative home loans with bad credit.
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