Jumbo Mortgages
A “jumbo mortgage” is any single loan amount over the conforming loan limit, which is currently $417,000 for a one unit property in the United States. Jumbo mortgages are not backed by the FNMA (Fannie Mae) or FHLMC (Freddie Mac), so outside investors typically buy these loans in securitized bundles on the secondary market.
Jumbo loan amounts carry greater risk for a number of reasons. Along with the larger loan amounts financed and fewer available investors, they also tend to be tied to luxury residences, which are known to be harder to sell in a short amount of time, mainly due to the general lack of wealthy, prospective home-buyers. Luxury homes are also more prone to valuation shifts than conventional homes during market shifts.
Because of the associated risks, jumbo mortgage loans carry slightly higher interest rates, although not by much. The difference may only be .25% – .50% higher, or borrowers may just lose out on any rebate offered for a conforming loan amount.
Most mortgage lenders offer the same loan programs for jumbo loans as they do for conforming loans, such as fixed-rate loans and interest-only home loans. Borrowers may even be able to find zero-down jumbo mortgages without a problem. Most lenders these days can provide 100% financing on deals up to around $1.5 million.
Keep in mind that most lenders have loan amount limits, which usually drop as the loan-to-value/combined-loan-to-value gets closer to 100% financing. For example, you may be limited to a loan amount of $1.5 million at 90% LTV, but able to borrow $2 million at 80% LTV.
Super Jumbo Loans
Some jumbo loans are known as super jumbo loans, much to the excitement of mortgage brokers and loan officers who think they’ve got a huge deal on their hands and dollar signs in their eyes. But a true “super jumbo loan” is any loan amount above $650,000, ranging up to $20 million or higher.
Conforming Jumbo Loans
New legislation has also brought about so-called “conforming-jumbo loans,” which are neither jumbo loans or conforming loans, and range between $417,000 and $729,750. They typically carry interest rates closer to those of conforming loans, with a slight premium.
Update: Keep in mind that some of what was written above was put together before the mortgage crisis took hold. Jumbo mortgage rates are now a bit higher than conforming rates, and it’s much more difficult to obtain financing for jumbo loans than it used to be. This is mainly because the secondary market for jumbo mortgages, or really any mortgages not backed by the government, has simply dried up.
