Jumbo Loans For Luxury Properties
In the United States, a jumbo mortgage is a mortgage loan in an amount above conventional
conforming loan limits. This standard is set by the two government-sponsored enterprises Fannie Mae and Freddie
Mac, and sets the limit on the maximum value of any individual mortgage they will purchase from a lender. Fannie
Mae (FNMA) and Freddie Mac (FHLMC) are large agencies that purchase the bulk of U.S. residential mortgages from
banks and other lenders, allowing them to free up liquidity to lend more mortgages. When FNMA and FHLMC limits
don't cover the full loan amount, the loan is referred to as a "jumbo mortgage". The average interest rates on
jumbo mortgages are typically higher than for conforming mortgages.
On February 13, 2008 President George W. Bush signed the Housing and Economic Recovery Act of 2008 which
temporarily increased the jumbo conforming limit in the United States. The limit was raised to $729,750 or 125% of
the median home value within the metropolitan statistical area, whichever is the lesser. Initially due to expire in
December 2008, the new limits were extended through 2010. Mortgage lenders did not freely adopt these new limits,
making them essentially "theoretical," as mortgages above the old conforming limit of $417,000 still attracted
higher interest rates. As of 2010, the limit on a conforming loan in "general" areas was $417,000 for most of the
US, apart from Alaska, Hawaii, Guam, and the U.S. Virgin Islands, where the limit was $625,500. The limit in "high
cost" areas was $729,750 and $938,250, respectively. On October 1, 2011 the jumbo conforming limit of $729,750 in
"high cost" areas was reduced to $625,500.
Jumbo mortgage loans are a higher risk for lenders. This is because if a jumbo mortgage loan defaults, it may be
harder to sell a luxury residence quickly for full price. Luxury prices are more vulnerable to market highs and
lows in some cases. That is one reason lenders prefer to have a higher down payment from jumbo loan seekers. Jumbo
home prices can be more subjective and not as easily sold to a mainstream borrower, therefore many lenders may
require two appraisals on a jumbo mortgage loan.
The interest rate charged on jumbo mortgage loans is generally higher than a loan that is conforming, due to the
higher risk to the lender. The spread, or difference between the two rates, depends on the current market price of
risk. While typically the spread fluctuates between 0.25 and 0.5%, at times of high investor anxiety, such as
August 2007, it can exceed one and a half percentage points. It can be more expensive to refinance a jumbo loan due
to the closing costs. Some lenders will offer the service of an extension and consolidation agreement, so that a
jumbo refinancer will not have to pay for mortgage tax again on the same principal balance. In other cases, title
insurance companies will offer up to a 50% discount, often required by law for those refinancing within 1 year to
10 years. The largest discount is for refinancing within one year.
AmeriStar Financial Services is a world leader in luxury mortgages and loans. We have a solid track record and
have found solutions for many customers in their mortgage requirements. Whether you are looking for a new mortgage
or a refinance on your existing one, we have the experience, resources and knowledge to manage your mortgage
process and transaction. Every customer we deal with has a unique requirement for their luxury real estate
purchase, which is why we custom tailor mortgage solutions to best suit your needs.
Contact us today for a complimentary and confidential consultation.