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.
Update: So-called “conforming-jumbo loans,” which are neither jumbo loans or conforming loans, range between $417,000 and $729,750, and typically carry interest rates closer to those of conforming loans.
Jumbo loan amounts carry greater risk for a number of reasons. Along with 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 be .25% – .50% higher, or borrowers may just lose out on a rebate offered on conventional loan amounts. And now that home prices in many metropolitan areas in the United States are so high, most mortgages end up being jumbo loans anyways, so lenders aren’t stressing the importance of the jumbo limit anymore.
Most lenders offer the same programs for jumbo loans as they do for conventional loans. Borrowers can even 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 there are loan limits on very expensive properties, but usually loan programs are available for all loan amounts, both large and small as long as the LTV/CLTV is within guidelines and not too close to 100% financing.
Jumbo loans are also known as super jumbo loans to excitable brokers and loan officers who think they’ve got a huge deal on their hands and money signs in their eyes. But a true “super jumbo loan” is a loan amount of $650,000 and above.
Keep in mind that some of what’s written above was put together before the mortgage crisis took hold. Jumbo mortgage rates are now much 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.
