One of the creative real estate financing options open to borrowers who are
looking for a large loan for the purchase of a residence is the jumbo loan. A
jumbo loan is any mortgage with an amount greater than a limit that was set by
the Fannie Mae guidelines. This creating financing solution has had a definite
impact on the real estate market. The number of homes that cost $1 million or
more being offered on the market has increased, and the number of people in the
market for these homes has also risen over the past few years.
As a rule, lenders have some very specific guidelines regulating many aspects
of a traditional home loan, including a cap on the amount of a home loan. But
the number of people looking for loans larger than that cap meant that lenders
had to find a creative home loan financing option. Enter the jumbo and super
jumbo loans.
If you’re looking for a jumbo loan, the first step is to find lenders who are
accustomed to making loans of this size. A traditional lender may be more than
ready to loan you several hundred thousand dollars, but could balk at the
mention of a couple of million you need to purchase the home you’ve chosen. Even
if you have excellent credit, a loan of this size calls for creative home
financing.
The creative financing option of a jumbo loan will still carry some stringent
requirements. In fact, you may be facing some obstacles even from a company
accustomed to this kind of creative home financing. The increased risk will
likely play an important role in the rates and terms of your creative home loan
financing. Here’s why.
Even a traditional loan carries some risks. The most qualified borrower could
experience difficulties that cause them to default on a loan. The lender
protects himself by being sure that the amount of the loan can be recouped. This
is no less true of the creative financing lenders who work with jumbo loans.
Even though these creative real estate financing programs typically require
more money down (a 70 percent loan to value is typical), the lender has to be
sure the loss could be recovered if the borrower defaults. Even if you make a
significant down payment on this creative financing option, the fact remains
that the lender is going to have a very expensive home to sell if you should
default. And even with the creative financing option of jumbo loans, the number
of people in the market for those homes is significantly less than those in the
market for homes that can be financed with traditional loans.
Because of the higher risk, this type of creative home loan typically carries
a higher interest rate and may have less desirable terms than a traditional
loan. Second mortgages may be more difficult to arrange, and there are some
other issues consumers have to face if they’re applying for creative financing
in the form of a jumbo loan.
The jumbo loan is a creative financing option that was initiated by consumer
demand. Both jumbo and super jumbo loans are the creative home loan financing
choices created by that demand. It’s doubtful that this type of creative
financing will ever rise to be a significant portion of the real estate and
financing market, but there’s no doubt it plays an important role.
If you’re considering a large loan, take a look at current Fannie Mae
guidelines. This will give you the current limit for traditional loans and
outline the creative financing options of jumbo and super jumbo loans.
