Jumbo Mortgages Flashcards
One of the smallest numbers of mortgages that you’ll issue as a lender, unless you specialize in this type of loan is the jumbo mortgage. This section will test your knowledge on this unique non-conforming mortgage and ask questions related to what types of people get these loans and why they are better suited to this than others.
When an applicant finds themselves unable to get a conventional loan despite a near perfect credit-rating, it is often due to the fact their case is better suited to a jumbo loan. But what is a jumbo loan?
A. The largest mortgage a borrower can obtain from a private lender.
B. A loan that allows borrowers to buy homes and other luxurious
purchases.
C. A loan for little houses.
D. A renter can take out a loan from their landlord to pay for rent.
Correct answer: AA is correct, as a jumbo loan is the biggest mortgage that a borrower can get from a private lender. They are for houses valued at $726,200 (in 2023 at the time of writing this), which is not covered by conventional or government-insured loans. The Federal Housing Finance
Agency set these limits for bigger purchases as they are much more risky than smaller loans, so they are not insured or obtained by Fannie Mae or Freddie Mac.
Can you buy a million-dollar house with a jumbo loan?
A. Yes.
B. No.
Correct answer: AA is correct, as a jumbo loan is the mortgage type used by millionaires to purchase dream million-dollar homes. These riskier purchases have their own mortgage type due to the larger loan being offered by lenders with these different rules and regulations. This includes different underwriting requirements and tax implications.
Why are jumbo loan interest rates so high?
A. Jumbo loan interest rates are no different from other mortgages.
B. Lenders need to ensure loans are paid back.
C. Jumbo borrowers are rich, so they can happily pay more.
D. The extra interest goes towards lending insurance.
Correct answer: AA is correct, as although it may seem like jumbo loan interest rates are higher than others, they are actually no different than other mortgages and their average rates are set by the Federal Reserve
benchmark. The lender will take this average and weigh the individual case
of the applicant before deciding on a final rate.
What are considered factors in deciding the risk profile of jumbo loans?
A. The age and ethnicity of the applicant.
B. House sellers backing out of a sale.
C. The credit rating, income, and assets of the applicant.
E. A & C
Correct answer: C
C is correct because a lender needs to be extra cautious when they consider
a jumbo loan. They will oversee this judgment by looking at the credit
rating, income, and the assets of the applicant when they judge the risky
nature of the applicant. If these things show clear evidence of the applicant’s ability repay this larger loan, it will be approved (and if not, you know the rest).
A jumbo loan requires a lot of hoops that an applicant must climb through if they want to succeed in the dream of owning a million-dollar home. What is the down payment requirement for a jumbo loan?
A. There is no rule.
B. 5%
C. 10%
D. 20%
E. 30%
Correct answer: C
C is correct, as a jumbo loan requires a 10% minimum of a house deposit if the borrower’s credit rating is 680 or higher. However, in most cases, deposits will be between 20-30% due to the extra risky nature of the loan amount.
Lenders are extra cautious about offering a jumbo loan for applicants. What makes a jumbo loan so difficult to approve?
A. Non-standard underwriting processes.
B. Rigorous credit checks.
C. Larger lending steaks.
D. Higher credit and income standards.
E. All the above.
Correct answer: E
E is correct because a jumbo loan is always a unique case for each lender, as the applicant will differ from a normal mortgage case. They will have to be more rigorous in the credit checks to ensure that the applicant can pay off the loan and will not default on payments; thus, their underwriting process will take longer and look deeper into financial affairs. Their credit and income standards will also be higher.
What is the threshold for a jumbo loan at the low end?
A. One million dollars.
B. $726,200.
C. $550,555.
D. 650,000.
Correct answer: B
B is correct because, as of 2023, the threshold for a jumbo loan is $726,200,
updated yearly with rising house prices and inflation. This is the high end of a conventional mortgage, with a jumbo loan used for houses above this rate.
Lenders and applicants are the only players in the setup of mortgages. What is the Federal Housing Finance Agency’s (FHFA)
role?
A. Setting interest rates.
B. Regulates Fannie Mae, Freddie Mac, and Federal Home loan banks.
C. The government agency that oversees all mortgage affairs.
D. A & B
Correct answer: D
D is correct because although the FHFA doesn’t play a massive role in the approval process of a mortgage application, they hold a large part of setting annual standard interest rates that lenders follow. Outside of setting interest rates, they also regulate the mortgage buyers Fannie Mae and Freddie Mac and oversee the government agencies that offer government mortgages.
What roles do Fannie Mae and Freddie Mac have in jumbo mortgages?
A. They purchase jumbo mortgages from lenders to allow lenders to engage
in further lending.
B. They do not purchase jumbo mortgages.
C. They give lenders more money to cover the loan.
D. They hold the portfolios of lenders or package them into mortgage-backed securities (MBS).
Correct answer: B
B is correct, as Fannie Mae and Freddie Mac do not purchase jumbo loans from lenders because they are limited by purchasing single-family mortgages that fall under the conventional mortgage threshold. A & D
would be correct if talking not about jumbo loans, as they operate to buy portfolios from lenders to give them more money for further lending. C is not correct as although they purchase mortgages to give lenders more money, they would not give lenders money just to cover a massive loan.
