What is a “jumbo” mortgage?

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When searching for 30 year fixed rates – what is the $ amount maximum loan, before it is considered a “jumbo” loan?

3 Comments
  1. Reply
    Quiet Storm
    April 29, 2011 at 9:47 pm

    A jumbo mortgage is a mortgage with a loan amount above the industry standard definition of conventional conforming loan limits. This standard is set by the two largest secondary market lenders, Fannie Mae and Freddie Mac. Loans above the conforming limits may be offered by seller servicers of these wholesale insitutions as well as Wall Street conduits who provide warehouse financing for mortgage lenders. The loan amounts reflect average loan sizes nationwide. Jumbo mortgages apply when agency (FNMA and FHLMC) limits don’t cover the full loan amount. Fannie Mae (FNMA) and Freddie Mac (FHLMC) are large agencies that purchase the bulk of residential mortgages in the U.S. They set a limit on the maximum dollar value of any mortgage they will purchase from an individual lender. As of 2006, the limit is $ 417,000, or $ 625,500 in Alaska, Hawaii, Guam, and the U.S. Virgin Islands. This leaves a portion of the market to look elsewhere for placement. Other large investors, such as insurance companies and banks, step in to fill the need with maximum mortgage amounts going to the $ 1 million or $ 2 million range. The average interest rates are typically greater than normal for conforming mortgages, and vary depending on property types and mortgage amount.

  2. Reply
    Joe K
    April 29, 2011 at 9:53 pm

    417k unless you are in Hawaii, Alaska (and a few other territories). Also, if you are buying a property that is >1 unit the prices are adjusted.

    Hope that helps.

    Joe…

  3. Reply
    W. E
    April 29, 2011 at 9:59 pm

    What Is A Jumbo Loan?

    Home loans are classified in a wide variety of ways. They can be classified by the amount loaned, whether the interest rate can be adjusted or not, the length of the payback period and so on. A fairly common and simple term to understand is the jumbo loan.

    A jumbo loan is simply a mortgage in excess of the amounts set by government backed agencies that buy or guarantee loans. Companies such as Freddie Mac, Fannie Mae, HUD and what have you will guarantee the purchase of a loan from a lender if certain conditions are met. A discussion of those conditions is beyond this article, but one of them is the amount being borrowed. Depending on the agency in question, the limit is roughly in the $ 417,000 area. If the amount you are borrowing is less than this amount, then it is known as a conforming loan. If you need to borrow more, the loan is known as a non-conforming loan or “jumbo” loan.

    Jumbo loans are different from conforming loans in a number of ways. Since no government agency is guaranteeing them, they are considered riskier. If you fail to pay, the lender is stuck with the home instead of simply getting paid by Fannie Mae or some such group. The situation is also considered to have more risk because higher priced homes are generally harder to sell quickly. While this wasn’t necessarily true in the recent hot real estate market, it is when things return to normal as they are now.

    Given the higher risk from the perspective of the lender, you can expect to be treated a bit differently. In this case, lenders are going to charge higher interest rates than you would be able to get with a conforming loan. Before you panic, keep in mind we are talking about a quarter of a point in interest. For example, a conforming loan for $ 300,000 may have an interest rate of 5.5 percent whereas the same borrower will have to pay 5.75 percent if they borrow $ 800,000.

    In many areas of the country, jumbo loans are pretty much the only way to go when borrowing money. Finding a home in San Diego for less than $ 417,000 is not the easiest thing to do. In fact, jumbo loans make up the majority of mortgages in areas with home costs such as San Francisco, San Diego, New York City and so on.

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