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Four Important Things to Know About Jumbo Home Loans

With the cost of home ownership in many markets continuing to rise, many prospective home buyers are moving away from conventional mortgages and towards jumbo home loans. Though no two jumbo loans are alike, there are some things that you should be aware of before you sign on the dotted line for one, such as:

1) Jumbo loans cannot be sold to Fannie Mae or Freddie Mac.

The vast majority of conventional mortgages will eventually be sold to either Fannie Mae or Freddie Mac by the bank who you originally sourced it from. However, since jumbo loans do not comply with conforming mortgage guidelines, they will not be purchased by either company. This means that the whole process from start to finish is run by and managed by your bank or financial institution – which is why jumbo loans can be so different from each other.

2) Jumbo loans are harder to qualify for.

Since the bank or financial institution won’t simply be able to sell the loan to Fannie Mae or Freddie Mac, they tend to be very strict about who they will lend to. Each lender will set their own regulations, but you will typically need to have an excellent credit score, a low debt-to-income ratio, and plenty of money for a down payment.

3) A lot of paperwork is required.

When completing a conventional mortgage, you should expect to have to provide and sign off on a lot of paperwork. When applying for a jumbo loan, your paperwork load will grow even further. Since lenders are giving you a significant amount of money (without the Fannie/Freddie fallback), they will want to double-check and verify just about everything. For example, where you might have to provide three months of pay stubs for a conventional mortgage, you may be asked to provide a year of pay stubs for a jumbo mortgage.

4) Interest rates are similar to conventional loans.

Though many people believe that jumbo loans will come with jumbo interest rates, this is not necessarily the case. In the vast majority of cases, you can expect to receive a rate very similar to that of a conventional mortgage. Of course, if your credit score isn’t as good as it could be or you don’t have a high down payment, that rate might go up a little.

Though the mortgage process can be a little daunting, particularly when seeking a jumbo loan, by having an idea of what to expect ahead of time you are putting yourself in the best possible position for success.

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