If you are in the market for a Jumbo Mortgage Loan, a loan that exceeds the $417,000 limit for single family residences set by Fannie Mae and Freddie Mac, you will want to consider your options carefully before making a decision. Below are four things to watch out for while choosing your lender:
1. Higher Interest Rates
Because lenders take a greater risk when insuring a large loan, they expect a higher rate of return to compensate for that risk; therefore, your interest rate will be .25%-.50% higher than on traditional, conforming loans. Because you cannot avoid this, get several quotes to ensure the best rate.
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2. Interest Only and Adjustable Rate Mortgages (ARMs)
This can be a dangerous option. While it will keep your payments down for a short, introductory period, subtle interest rate changes on loans of this size can lead to a stark increase in monthly payments after the locked-in period. Consumer difficulty in repaying these loans when they transition to fully amortized mortgages has contributed to rising foreclosure rates.
3. Don't Count On Appreciation
If you do, in fact, decide on an ARM or interest only loan, make sure you are not "prospecting" on your future. The rapidly growing appreciation levels of the last few years are gone; therefore, refinancing may be difficult when your introductory period expires. The aforementioned escalating foreclosure rates are causing property values to stagnate in many regions across the country.
4. Pushy Lenders/Brokers
Be wary of heavy-handed lenders/brokers because your loan size represents a large commission check. Talk to several lenders and get Good Faith Estimates to compare before committing. When reviewing those estimates, make certain they have included everything you are required to pay: points, underwriting fees, transfer tax, real estate taxes, title insurance, etc. Brokers, especially, like to leave off taxes on their initial estimates to make their closings costs appear smaller than their competitors.
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