Jumbo Loan

holcombe3January 30, 2013

I need some advice on our home loan. I admit I get a little lost when the lender starts trying to explain all of this to me. From what I understood, we are getting whats called a jumbo loan of 600,000 on a new home construction. He said that if we sold it to a mortgage company we would have a lower interest rate (probably) locked in for 30 years but we would have to pay closing cost twice. If we keep it in house with him, the interest rate would be 5% but can only be done for 15 years. I guess Im a little confused on having to pay closing cost twice. Which would be the better route to go? Im worried that locking it in for 15 years is going to be an outrageous monthly payment

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Wow, $600,000 x 5% ... the interest alone is a lot! You must be rich ;-) I agree you're right to worry about a possible 10% interest rate in 15 years, especially if you still owe $500,000+ at that time.

If that isn't manageable, can you get out of this contract? Buy something you can pay cash for?

    Bookmark   January 30, 2013 at 10:19AM
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Sounds like a construction loan that is them being replaced with a regular jumbo mortgage.

You close once on the construction loan, than again on the jumbo.

Since construction loans are not normally sold in the secondary market (the lender must hold them) the second closing is required.

While a jumbo is non-conforming (larger than Fannie or Freddie for a one family) there is a secondary market for them.

    Bookmark   January 30, 2013 at 10:28AM
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Is your loan only a 15 yr mortgage (in which case you'd have a large monthly payment), or is it only a 15 yr rate lock at which time, you would need to refinance to whatever rate is active at the time?

If you are concerned about your monthly payment, you need to ask what it will be. Mortgage loan people are all about telling you the monthly payment. Just ask.

After that, you'll want to determine if you can afford that. If you can, then refinancing to a lower rate shouldn't be a big deal even with "second closing costs". Generally, on a loan that large, you'll see a significant cost savings in interest alone by refinancing to a lower rate. And that cost-savings will be HUGE in comparison to the cost to refinance.

    Bookmark   January 30, 2013 at 10:51AM
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Thank yall so much for the input. I will call him back today and ask if it is a 15 year mortgage or lock rate. It seems like overall I am going to be better off selling it to a mortgage company. I also wondered if it would be possible to split the jumbo loan into two separate loans. I was told the cut off for jumbo loans was 417,000 and then it goes to a higher interest rate. Could you split it into two loans, thus getting a lower interest rate?

    Bookmark   January 30, 2013 at 11:41AM
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Lenders previously would do things like an 80/20% loan in order to help people avoid PMI or to avoid a jumbo loan. The first loan was a regular mortgage loan. The second loan was a home equity type of loan. The second loan typically had a higher interest rate and also had some closing costs associated with it--lower costs, but closing costs none the less.

It sounds like you are asking if something similar can be done in order to avoid a jumbo loan. The last time I spoke with a lender not many are doing home equity type loans any more for the initial purchase or even to allow an owner to pull out equity. If you can find a lender to to this, you will pay a higher rate on the second loan and closing costs for that loan.

    Bookmark   January 30, 2013 at 12:25PM
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I did find a lender willing to do this. She said she would separate one loan into 417,000 and put the remaining amount on the other loan. The drawback with using this lender is we are required to put the full 20% down and the other lender is allowing us to use our land as a down payment. I was considering calling back our lender to see if he would offer to split these up as well, but I wasnt aware that the second loan would be at a higher interest rate. Thanks for the info!

    Bookmark   January 30, 2013 at 1:07PM
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Second mortgages are generally higher than first since they carry higher risk.

There is the risk of the second, AND the risk of the first that the holder of the second will have to step into to preserve their second in a default.

    Bookmark   January 30, 2013 at 2:59PM
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