Adjectives are a double-edged sword for any writer. On one hand they can be overstated and ridiculous like calling snack food “x-treme” or calling a movie “an edge-of-your-seat thrill ride,” but if used with a restrained hand they can be a useful tool. A chilled glass of lemonade sounds more appealing than a regular one and a juicy steak is superior to a non-descriptive slab of meat. With every adjective, you have to search for the reason why it’s there: is the steak juicy because it was cooked to perfection or because it’s raw and bloody? Every adjective needs clarification, which is why this week’s Know Your Mortgage will focus on a loan with a hefty adjective in front of it: Jumbo Loans.
What Is a Jumbo Loan?
A jumbo loan is a loan that is over the conforming loan limit set by government-sponsored mortgage groups, which are Freddie Mac and Fannie Mae.
What’s a Conforming Loan Limit?
I figured that would be the next question. Freddie Mac and Fannie Mae are allowed to set the cap of how high any individual mortgage can be. In 2010, it was decided the conforming loan limit at which they would buy mortgages up to would be $417,000; if you live in Alaska, Guam, Hawaii or the U.S. Virgin Islands the limit is $625,000. If your mortgage amount is higher than either of these amounts, then it becomes a jumbo loan.
What Do I Need to Know About Jumbo Loans?
As said before, jumbo loans do not meet the requirements set by Freddie Mac and Fannie Mae, so higher payments can be expected because of the risk involved. A larger down payment, for example, might be required because more of a risk is taken by the lender with jumbo loans. If a house with a jumbo loan goes under and there haven’t been significant payments on it, the lender is hung out to dry in order to cover the costs lost.
In a nutshell, everything is jumbo about the jumbo loan: the size of the loan, the down payment and the monthly payments. This may sound alarming, but it’s normal in comparison to the size of an average loan. If you’re truly looking for that dream house and it falls into that range, don’t let the adjective “jumbo” deter you. All loan types are available in jumbo form: fixed, adjustable, VA, even FHA.
See? Adjectives aren’t that intimidating if you find the implied meaning behind them, and don’t let the “jumbo” of jumbo loan frighten you from getting one. If you have any lingering questions about the topic, please fire away below.