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Jumbo loans are used to finance higher priced homes which exceed the dollar amount that is allowed in a conventional loan. Freddie Mac and Fannie Mae, the government agencies that market mortgages, sets the monetary limits for which a conventional loan becomes a jumbo loan. Homeowners with jumbo mortgages are charged a higher interest rate. Freddie Mac and Fannie Mae buy the majority of mortgages from lenders and resell them on the open market to investors. During the financial crisis, lenders and investors did not want to purchase jumbo mortgages because they were a risky investment. Jumbo mortgages did not sell easily in the secondary market.
Nearly two years ago the credit crisis severely crippled the mortgage market for high-end borrowers. Today, there is new help for jumbo mortgages. Jumbo mortgages are priced at a more competitive rate, making it easier for homeowners with jumbo loans to refinance. The interest rates for jumbo loans are the lowest since around 2003. Affordable jumbo mortgages will help influence consumers to purchase a home. The resurgence of jumbo mortgages will help aid the recovery of the housing market Applications for jumbo loans has increased at retail branches in recent months, according to Citigroup, Inc. Bank of America, the largest mortgage lender in America, is offering jumbo loans at a competitive interest rate in the 5% range.
Bank of America will roll out a loan program that will provide jumbo loans between $730.000 and $1.5 million with an interest rate in the 5% range and a fixed 30 year mortgage. These loans will be available from Bank of America and its subsidiary, Countrywide Home Loans. Countrywide, one of the biggest subprime leaders was purchased by Bank of America last year. In April of 2010, the two financial institutions consolidated under one name, Bank of America Home Loans. In the past several months, there has been a 50% rise in the sale of homes with a jumbo mortgage. Jumbo loan borrowers may be the first to see an overall improvement in the housing market. If standard underwriting guidelines are followed, then jumbo loans can be one of the safest loans out there today. Borrowers who take out a jumbo loan will still need an excellent credit score to qualify for a loan. They will need a credit score of at least 700 and money in the bank to cover six months of payments. Borrowers must put down a minimum down payment of 20 per cent.
Typically, an area with a high concentration of expensive homes has relied on jumbo loans to finance their home mortgage. Last year, the private mortgage bond market on Wall Street collapse leaving consumers, builders and people wanting to refinance with very few options, except to pay a higher interest rate and put up a large down payment. With interest so high, borrowers attempted to avoid a higher mortgage payment by taking out a ?piggyback? second mortgage. Usually taken out a second smaller mortgage results in a lower monthly payment, than with a jumbo loan.
The monetary limit for a convention loan remains at $417, 000. In some areas with a heavy concentration of high-end home, especially in California, some areas of Florida, the Northeastern area of the U.S., Hawaii, Guam and the Virgin Islands has a higher limit for taking out a conventional mortgage. In 2008 this amount was raised from $417,000 to $625,000. New help was provided for jumbo mortgages with the passing of the economic stimulus legislation by Congress last month. The monetary limit was increase to $729,750 in some areas of the country.
Bank of America and other financial institutions, who are major players in the jumbo loans market, has become more active in recent months with providing new help for jumbo mortgages. Underwriting standards has become very rigorous. Lenders requires substantial cash reserves and liquid resources, six months of mortgage payments in the bank and fully documented credit scores and income. With the economy still in recession, jumbo conforming loans at $729,750 may never get off the ground. To revitalize the mortgage crisis, jumbo loans need to be available to consumers purchasing higher-cost homes. This will assure that new buyers and homeowners needing to refinance can take advantage of the lower interest rate for jumbo loans.
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