Understanding Jumbo Loans—Some Benefits And Drawbacks
Jumbo loans are essentially mortgage loans that exceed loan limits dictated by the federal government. Such loans are designed to finance more expensive properties, and cannot be purchased or supported by Freddie Mac or Fannie Mae, both of which are government-supported organizations.
Although highly beneficial, jumbo loans increase the lender’s risks. They will need to hold on to the loan for longer, and borrowers are expected to pay more than conventional loans. Qualifications are also more stringent, but as with anything in the real estate industry, the greater the risk, the greater the reward.
Simply put, a jumbo loan opens up plenty of opportunities for your buyer, especially since they’ll be allowed to own their dream home.
To help you fully understand the complex layers of jumbo loans, we’ve created this quick and easy guide to follow. We care about helping you make better financial decisions for your clients, so read on:
Who are jumbo loans made for?
Jumbo loans offer buyers the liberty to borrow more money than the standard. In essence, buyers are empowered to take out mortgages beyond the Fannie and Freddie loan limits, thereby allowing them to put down a higher amount of down payment and other necessities.
If you have clients looking to purchase a luxury home, for instance, expect them to be thwarted by conforming loan limits. Most property buyers end up finding a lender who offers second conventional mortgages for bigger loan amounts, but most find that jumbo mortgages are much more convenient.
They work beyond the traditional lending standards, thereby allowing your clients to invest in luxury homes, vacation properties, second homes, and even property investments.
Are there any drawbacks?
Given the higher loan amounts, jumbo mortgages carry more risks on the lender’s end. This means that interest rates are often higher, along with other potential drawbacks that prevent borrowers from fully committing.
To help you fully grasp two sides of the coin, it’s important to address all factors that make jumbo loans less popular:
- Your clients will have to follow stricter guidelines: When it comes to assets, down payments, and credit to debt ratio requirements, you’ll find that applying for jumbo loans will be far more challenging. However, the risk is always worth it.
- Appraisals can be challenging: Bear in mind that jumbo loans come with no appraisal waivers, meaning that lenders will want to release formal reviews and second appraisals to ensure that all things are in order. The process will also be longer, especially since most properties are bigger than the normal properties. The size of the dwellings will factor into the timeline.
- Jumbo loans take longer to be approved: The approval process takes longer than usual, which includes the pre-approval, processing, and underwriting. Conventional loans usually take two hours to create but expect jumbo loans to take up to 20 hours before funding is released.
The bright side: Jumbo loans can be refinanced without a problem, especially once the loan balance has been paid below the loan limits. It’s also important to note that jumbo loans effectively and efficiently help borrowers gain the property of their dreams—making it worth the wait.
The Bottom Line
Investing in a property or a luxury home is a right your clients are entitled to, and while loans can be daunting, there’s always one that exists to suit their needs. Jumbo loans, for instance, are designed to help homeowners achieve their dream homes, be it a vacation home, a modern mansion, and even a rental property. Whatever their investment needs may be, jumbo loans can make it happen.
For the best wholesale lenders in the USA, FSB Mortgage has you covered. We are a third-property loan partner, ensuring that you have access to the best possible loans. Allow us to help you take your career as a broker up a notch—partner with us today!
FSB Mortgage is a nationwide, bank-backed lender offering a broad range of loan products to retail customers. Get in touch today to learn about our flexible lending products, fast turn times, and exceptional customer support.