The term jumbo mortgage sounds like a very awkward phrase, doesn’t it? It may sounds awkward, but it is a very simple concept. Sometimes they are called “California Loans” because they are often used in the state of California to purchase the expensive properties located there.
The average mortgage is over $100,000 with $250,000 or more being considered a large mortgage loan. Many mortgage companies found they didn’t want to take the larger risk of holding the large loan sizes and, hence, the jumbo mortgage was developed. Today, jumbo mortgages are not uncommon and are reasonably easy to obtain so long as you meet certain credit and income guidelines.
If you want to obtain a property in the $300,000+ range, you should anticipate applying for a jumbo mortgage. Of course, you may pay a large down payment if you have the available funds, and, thus, avoid the higher rates associated with jumbo loans. If you are considering selling assets to avoid the jumbo mortgage, speak with your financial advisor first. There are circumstances which could affect your situation.
The major downside of a jumbo mortgage is that the lender will most likely charge you a higher interest rate than for a smaller traditional mortgage. Why? Because the risk to the lender is greater when lending a large sum and their collateral is an expensive home that not just anyone could afford. The lender doesn’t want to own homes – they loan money, and selling the house in the event you should default on your loan, isn’t nearly as easy as selling a moderately priced home.
If you finance your home or condo using a jumbo mortgage then you can certainly pay the mortgage down to an amount that qualifies you for a non-jumbo loan and refinance. This can save you thousands in interest compared to paying the higher interest rate over the life of the jumbo loan. Refinancing is an easy process and well worth the research once your jumbo mortgage balance has declined.