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Help with Jumbo Loan

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Posted On: 07/04/2012

Question:

How can people refinance if they have a solid credit score and equity in their home, but their loan is not owned by Fannie Mae or Freddie Mac? We have an interest rate above 6 percent but cannot find a lender to refinance our jumbo mortgage. We've tried a few loan companies but they all say our debt ratio is too high – even though we have positive equity in our home.

Answer:

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Fannie Mae and Freddie Mac buy “conforming” mortgages. Such loans must meet certain standards, and one of those requirements is that a loan cannot be too big. You're looking for a “jumbo” loan, which is larger than the loans Fannie Mae or Freddie Mac are allowed to purchase.

If you want a “non-conforming” or jumbo loan, then you'll have to pay more. As the California Association of Realtors explains, such loans “typically carry a higher mortgage interest rate than a conforming loan and require a higher down payment.”

As an example of higher costs, the FHA is allowed to insure loans for as much as $729,750. However, as of June 11, it charges an additional 0.25 percent for the annual mortgage insurance premium if the mortgage amount is above $625,500.

The difficult question is where to draw the loan limit line: How big is too big and too risky? Should the FHA even make larger loans, given its historic purpose to assist first-time and moderate-income borrowers?

Mortgage loan limits are generally not an issue. In April, the typical existing home sold for $178,000, according to the National Association of Realtors. Fewer than 1 percent of all FHA mortgages have initial loan amounts above $500,000. However, in such locations as California, Boston and Washington, D.C. – places where there are many high-priced homes – conventional loan limits impact the ability to finance and refinance high-cost properties because fewer financing options are available.

Peter G. Miller is the author of The Common-Sense Mortgage and a veteran real estate columnist. Have a question? Please write to peter@ctwfeatures.com.

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