Jumbo Mortgages

A “jumbo mortgage” is any single loan amount over the conforming loan limit (set by the Federal Housing Finance Agency), which is currently set at $417,000 for a one unit property in the contiguous United States. So if your loan amount is $417,001 or higher, your loan is considered jumbo.

However, it should be noted that there are different jumbo limits depending on both the number of units on the property, along with where the property is located.

For properties located in the contiguous United States, including D.C and Puerto Rico, jumbo loan limits are as follows:

1-unit property: Greater than $417,000
2-unit property: Greater than $533,850
3-unit property: Greater than $645,300
4-unit property: Greater than $801,950

In Alaska, Guam, Hawaii, and the U.S. Virgin Islands, jumbo loan limits are higher:

1-unit property: Greater than $625,500
2-unit property: Greater than $800,775
3-unit property: Greater than $967,950
4-unit property: Greater than $1,202,925

As you can see, in some parts of the country, you can get a rather large loan without entering into jumbo loan territory. The same goes for multi-unit properties.

Rather importantly, jumbo mortgages cannot be sold to Fannie Mae or Freddie Mac, so outside investors typically buy these loans in securitized bundles on the secondary market, or lenders simply keep them on their own books.

Jumbo loans 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 out there. Luxury homes are also more prone to valuation shifts than moderately priced homes during market shifts.

Jumbo Loans Have Higher Mortgage Rates

Because of the associated risks, jumbo mortgage loans tend to carry slightly higher mortgage rates, although not necessarily by that much. The difference may only be .25% – .50% higher, or borrowers may just lose out on any lender credit 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, ARMs, 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 as well, which usually drop as the loan-to-value (LTV) or combined-loan-to-value (CLTV) 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. If your LTV is below 65%, loan amounts of up to $3 million may be possible.

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).

While there might be some argument, a true “super jumbo loan” is any loan amount above $650,000, ranging up to $20 million or higher.

This term is probably used incorrectly on a daily basis, depending on the state in which the overzealous loan officer resides. I suppose it’s all relative.

Tip: You can break up your loan into a first and second mortgage to avoid paying more for a jumbo loan. Just make sure the combined rate is cheaper than what it would be otherwise.

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 $417,001 and $625,500 for conventional loans, and $417,001 to $729,750 for FHA loans.  They typically carry interest rates closer to those of conforming loans, with perhaps a slight premium.

They are now known as “high balance mortgages,” meaning they aren’t conforming, but aren’t jumbo either. So a loan amount in this range will be slightly more expensive to finance than a conforming loan, but significantly cheaper than a jumbo loan.

Note: Keep in mind that some of what was written above was put together before the mortgage crisis took hold. Jumbo mortgage rates are now quite 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 or Fannie/Freddie, has simply dried up. As a result, financing these types of loans comes at a premium.

Compare Today’s Mortgage Rates


6 Comments

  1. Sharika July 5, 2013 at 2:40 pm -

    I’ve noticed lately that mortgage rates are lower on jumbo loans vs. non-jumbos? Is this because the Fed is going to stop buying mortgages backed by Fannie Mae and Freddie Mac?

  2. Colin Robertson July 8, 2013 at 1:00 pm -

    Pretty much – as investor demand for conforming mortgages decreases (thanks in part to Fed exit), interest rates will need to rise to lure in more buyers. Conversely, as more investors seek jumbo loans, rates should drop.

  3. Igor July 11, 2013 at 8:35 am -

    I recently applied for a jumbo loan and was told it would be cheaper if it were conforming. So I guess it depends on the lender. I might be able to bring in some cash to keep it under the jumbo limit though. Gotta do the math to see if that makes sense.

  4. Colin Robertson July 15, 2013 at 1:26 pm -

    Yeah, last I checked, Wells Fargo was offering lower rates on jumbo loans than conforming loans, but it might be short-lived, assuming things normalize again soon.

  5. Walt July 27, 2013 at 6:49 am -

    I’ve seen the opposite. It depends which bank you’re dealing with and what they specialize in. Most of the time jumbo loans will be priced higher than conforming loans. That’s the norm, so anything opposite of that is the exception, not the rule.

  6. Hassan July 29, 2013 at 10:27 am -

    Yep. More often than not your jumbo loan is going to price higher than a conforming loan. There’s less liquidity for jumbos on the secondary market, so they often carry a premium.

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