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Jumbo Loans Should Be Key to Purchase Mortgage Business

A significant percentage of affluent borrowers are buying homes which causes a lot of major banks to stay in the jumbo mortgage business. Those high-balance loans are more risky particularly for interest-only jumbos and jumbos with debt-to-income ratios above 43%. Jumbo mortgage loans hold a higher risk for lenders, mainly due to their larger size and not so much because of the quality of the loan itself. This is because if a jumbo mortgage loan defaults, it may be harder to sell a luxury residence quickly for full price. Market has a serious influence on luxury prices in most cases. Therefore, lenders sometimes prefer to have a higher down payment from jumbo loan seekers. It is more difficult to sell  jumbo home to the average borrower because prices can be more subjective. Thus, many lenders may require two appraisals on a jumbo mortgage loan.

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However, homebuilders are finding plenty of lenders that will serve their customers.

Most of jumbo mortgage are being done by lending through its private wealth management unit and some through its others bank branches.

Jumbo loans have played an important role in the so called US housing bubble. The rising of house prices in the United States have caused a rise in the jumbo loans applications. Jumbo mortgages were not limited only to luxury properties anymore. Rather many average clients who were interested in buying a normal house in big-city areas, were applying for a jumbo loan.

The conditions for such loans were 40 to 50 years amortization or an interest-only option. This meant the loan could be paid over a longer period of time. The other option was that paymnets could be differed of principal for a few years. Even though that, lenders started to refuse giving jumbo mortgages since 2007 when prices fell down. Other lenders who chose to stay in the jumbo loans sector, rose their price rates. This created a vicious cycle where there was a lack of lending and thus, expensive residences couldn’t be bought and in turn, this put a pressure on house prices. Later on, new limits to jumbo mortgages were adopted in order to fit into the new economic environment after the financial crisis in 2008.


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