Jumbo Loans

If you are looking for a loan in an amount above conventional conforming loan limits, you might want to consider a jumbo mortgage.
This standard is set by the two government-sponsored enterprises Fannie Mae and Freddie Mac, and sets the limit on the maximum value of any individual mortgage they will purchase from a lender. Fannie Mae (FNMA) and Freddie Mac (FHLMC) are large agencies that purchase the bulk of U.S. residential mortgages from banks and other lenders, allowing them to free up liquidity to lend more mortgages. When FNMA and FHLMC limits don’t cover the full loan amount, the loan is referred to as a “jumbo mortgage”. The average interest rates on jumbo mortgages are typically higher than for conforming mortgages.

Fast Facts

$417,000 is the maximum conforming loan limit for mortgages acquired by Fannie Mae & Freddie Mac

Loan limits are calculated each year under the terms of the Housing and Economic Recovery Act (HERA)

Jumbo mortgages are a higher risk for lenders, mainly due to their size rather than their credit quality

Interest rates may be higher due to the higher risk involved in a jumbo loan

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Frequently Asked Questions

How does the interest rates for jumbo loans compare to that of conventional loans?

The interest rate on a jumbo loan is usually higher than that of a conforming loan because the risks to the lender are higher. For example, if the buyer defaults, a luxury home is hard to sell quickly at its full value. Luxury homes are simply more vulnerable to market highs and lows. Because of this, jumbo loan interest rates usually run between .25% and .5% higher, and have jumped as high as 1% higher during times of housing turmoil or high investor anxiety. Other factors that determine the interest rate include property types and mortgage amounts.

When is a jumbo loan usually used?

Although conforming loans can be used for a number of reasons, it’s quite common for nonconforming loans to be used for higher priced properties, including loans for luxury primary residences, second homes and personal investment properties.

How do underwriting qualifications differ between jumbo and non-jumbo?

For many investors, the underwriting qualifications are stiffer for jumbo loans. The reason is this: the bank is stuck with the loan for as long as the borrower has it. The bank needs to be assured of the quality as examiners review their books on a continual basis. Additionally, since the properties are more expensive, there is more exposure to the bank, so the appraisals are carefully reviewed to ensure the collateral is solid.