Owning a home is just one part of the American dream, but it often turns out to be more expensive than prospective homeowners in Connecticut expect. Finding a lender who is willing to offer fairly large mortgages might feel like the perfect solution to an expensive housing market. But securing a jumbo mortgage can actually cause more problems than it solves. As the past has already shown, jumbo mortgages play a surprisingly large role in bankruptcy filings.
When a property is too expensive for a typical home loan, a lender might offer a jumbo mortgage that ranges in value from the $400,000s to millions of dollars. Securing this type of mortgage is not that hard, either. Even though the last recession was not that long ago, one lender is offering $1 million mortgages to people with credit scores of 760 or higher. All they have to do is pull together a 10% downpayment. Borrowers who have credit scores of only 640 can get even larger mortgages through a different lender, often as much as $3 million.
However, jumbo mortgages are used for more than just buying property. Between 2004 and 2007, the peak years of the Great Recession’s housing bubble, most jumbo mortgages were used for refinancing. The refinanced mortgages were often much larger than the originals they replaced, and the number of delinquent borrowers rose dramatically.
Even if the housing market feels stable or the economy seems to be doing well, jumbo mortgages are a serious problem hiding in plain sight. Lenders are less likely to foreclose on properties that are worth more than average, even when borrowers fall behind on payments. As borrowers struggle to get current on their jumbo mortgages, some experts believe that the housing crisis from the early 2000s could happen again very soon.
It is difficult to face the reality of having too much debt and too little money. This often results in people prioritizing certain debts over others, even if they would much rather pay everything in full and on time. Becoming delinquent is not helpful to this situation, though. Rather than fall months or even years behind on jumbo mortgage payments, Connecticut homeowners can address both their debt problems and foreclosure concerns through the process of bankruptcy.