California Jumbo Loan

California is home to some of the most expensive real estate on Earth. In fact, according to 2006 Forbes statistics 13 of the 25 most expensive zip codes can be found in California, from Newport Beach in Orange County to Beverly Hills 90210 - perhaps the most well-known zip code in the US.

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It may surprise you to learn this, but even the wealthiest people will often purchase their home with a mortgage. Despite the conspicuous wealth in these California zip codes, few can afford to simply hand over enormous sums of money up front. As a result, many California homeowners spread the cost over many years.

Unfortunately, the median house prices for all of these zip codes fall well over the limit set by Freddie Mac and Fannie Mae, the federal mortgage purchasers. They will only cover mortgages up to (at time of writing) $417,000. This means that all the home loans taken out in these California zip codes are termed jumbo loans.

A jumbo loan is simply a loan that is valued about the limit set by the federal government. Since the government won’t back the loan, private interests must step it to accept the risk. These interests include banks and insurance companies, and since these private interests are taking such a risk to back the mortgages, they usually demand a slightly higher interest rate than a regular home loan (usually between .25 and .5% above average). They will also insist on a minimum down payment of 5% of the total value of the loan.

While this may seem a high price to pay for a home loan, it’s well worth it when a homebuyer gets to choose between any one of their ten bedrooms. That experience, it would seem, is priceless.