The Truth About Jumbo Mortgage Loans
The average price of a home in the United States is right around 300,000 dollars. When you apply for a mortgage to purchase a home around that average price, the general rules of mortgage loans apply. But what happens when the price of the home you want to purchase far exceeds the typical home price? Jumbo Mortgage loans are offered by banks for homes that exceed a certain price limit.
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.
Since the homes are harder to sell, banks know that if the owner defaults on the loan, there isn't much of likelihood that they'll be able to sell the home, even in foreclosure. Since banks know these homes are high risk homes to finance, banks only offer the mortgages with specific guidelines.
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.
The second way banks absorb some of the risk is by attaching high interest rates to the mortgage. This allows the bank to make more money in the short and long run of the loan. This also makes the monthly mortgage payment a lot higher as well so the homes are quite costly to the borrower.
Closing costs on the loans are very high as well. Overall, this type of mortgage is really expensive. In the past, these types of mortgages were only needed for high-end luxury homes, but in recent years, housing prices have skyrocketed. Many people in areas like California and Washington D.C. were forced to become jumbo borrowers even though they were buying a modest home.
The amount of the loan is high which means they are already making money, but with a higher interest rate, they make even more money. The closing costs are also elevated. This all translates to more money for the lender.
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.
Since the homes are harder to sell, banks know that if the owner defaults on the loan, there isn't much of likelihood that they'll be able to sell the home, even in foreclosure. Since banks know these homes are high risk homes to finance, banks only offer the mortgages with specific guidelines.
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.
The second way banks absorb some of the risk is by attaching high interest rates to the mortgage. This allows the bank to make more money in the short and long run of the loan. This also makes the monthly mortgage payment a lot higher as well so the homes are quite costly to the borrower.
Closing costs on the loans are very high as well. Overall, this type of mortgage is really expensive. In the past, these types of mortgages were only needed for high-end luxury homes, but in recent years, housing prices have skyrocketed. Many people in areas like California and Washington D.C. were forced to become jumbo borrowers even though they were buying a modest home.
The amount of the loan is high which means they are already making money, but with a higher interest rate, they make even more money. The closing costs are also elevated. This all translates to more money for the lender.
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.
posted by Credit Counseling at
4:14 PM
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