Creative RE Financing
The Jumbo Loan – A Creative Real Estate Financing Option
By Buyincomeproperty.com
Oct 27, 2005, 14:20

One of the creative real estate financing options open to borrowers who are looking for a large loan for the purchase of a residence is the jumbo loan. A jumbo loan is any mortgage with an amount greater than a limit that was set by the Fannie Mae guidelines. This creating financing solution has had a definite impact on the real estate market. The number of homes that cost $1 million or more being offered on the market has increased, and the number of people in the market for these homes has also risen over the past few years.

As a rule, lenders have some very specific guidelines regulating many aspects of a traditional home loan, including a cap on the amount of a home loan. But the number of people looking for loans larger than that cap meant that lenders had to find a creative home loan financing option. Enter the jumbo and super jumbo loans.

If you’re looking for a jumbo loan, the first step is to find lenders who are accustomed to making loans of this size. A traditional lender may be more than ready to loan you several hundred thousand dollars, but could balk at the mention of a couple of million you need to purchase the home you’ve chosen. Even if you have excellent credit, a loan of this size calls for creative home financing.

The creative financing option of a jumbo loan will still carry some stringent requirements. In fact, you may be facing some obstacles even from a company accustomed to this kind of creative home financing. The increased risk will likely play an important role in the rates and terms of your creative home loan financing. Here’s why.

Even a traditional loan carries some risks. The most qualified borrower could experience difficulties that cause them to default on a loan. The lender protects himself by being sure that the amount of the loan can be recouped. This is no less true of the creative financing lenders who work with jumbo loans.

Even though these creative real estate financing programs typically require more money down (a 70 percent loan to value is typical), the lender has to be sure the loss could be recovered if the borrower defaults. Even if you make a significant down payment on this creative financing option, the fact remains that the lender is going to have a very expensive home to sell if you should default. And even with the creative financing option of jumbo loans, the number of people in the market for those homes is significantly less than those in the market for homes that can be financed with traditional loans.

Because of the higher risk, this type of creative home loan typically carries a higher interest rate and may have less desirable terms than a traditional loan. Second mortgages may be more difficult to arrange, and there are some other issues consumers have to face if they’re applying for creative financing in the form of a jumbo loan.

The jumbo loan is a creative financing option that was initiated by consumer demand. Both jumbo and super jumbo loans are the creative home loan financing choices created by that demand. It’s doubtful that this type of creative financing will ever rise to be a significant portion of the real estate and financing market, but there’s no doubt it plays an important role.

If you’re considering a large loan, take a look at current Fannie Mae guidelines. This will give you the current limit for traditional loans and outline the creative financing options of jumbo and super jumbo loans.