If you wish to buy a house in a costlier locality, you may be seeking a bigger loan for this purpose. Jumbo loans are not governed by Government regulations and are usually available via private lending or financial institutions. They help those looking for bigger loans than the regulatory limit/threshold for sanctioning loans and without the regular cash flow to make a bigger down payment for the home.
Jumbo loans or jumbo mortgages are specific financing types where the amount of the loan exceeds the loan limit/threshold for sanctioning as per the federal/national housing authority or banking regulator.
In many countries, this means that there is no mandatory requirement for insuring the mortgage. Yet, these loans are riskier for the lender since the customers cannot make higher down payments and end up taking on more debt than what is otherwise sanctioned. These loans also have stringent eligibility requirements and various parameters. Jumbo loans are sanctioned on the basis of DTI (debt-to-income) ratios and credit scores, comparing minimum installments and existing payments to the monthly income. Lenders may ask for other requirements or set other conditions before approving jumbo loans which naturally have higher risks than regular mortgages. They may require proof of the borrower’s liquid assets, cash flows, and income, for ensuring that they can repay the loan back. The down payment may still be higher than normal and closing costs could also be on the higher side.
