Jumbo Loan Limits

Non-Conforming Loans

A jumbo loan is also known as a non-conforming loan because jumbo loan limits do not conform to industry standard limits, but instead exceed the limits. Loans that conform to the limits are known as conforming loans and are eligible to be purchased by both Fannie Mae and Freddie Mac. Because these two wholesale institutions purchase and sell jumbo loans on a smaller scale, jumbo loans sometimes carry higher interest rates compared to conforming loans. However, the range differs between conforming and non-conforming loans with the economy. Insurance companies, banks and other large investors step in to fill the need for maximum mortgage amounts ranging beyond the limits set by Fannie Mae and Freddie Mac.

Although the definition of jumbo loan limits may seem clear, the term jumbo loan does not always signify loans that do not conform to Fannie Mae and Freddie Mac's loan limits. When talking about larger loan mortgage programs, mortgage lenders often refer to these bigger loans as jumbo loans. In today’s market it is not uncommon to find mortgage lenders offering loans in amounts over $1 million.

Jumbo Loan Limits Explained

Loans in excess of the maximum loan amounts established by Fannie Mae and Freddie Mac are known as jumbo loans. Because these loans exceed set limits they are called non-conforming or jumbo loans. Both Fannie Mae and Freddie Mac work to cultivate mortgage lending that promotes increased home ownership. For borrowers who fit specific loan criteria, these financial service corporations usually offer lower interest rates. However, jumbo loan limits prevent Fannie Mae and Freddie Mac from funding jumbo loans on a large scale. Because of this, interest rates for jumbo loans are usually higher than conforming loans.

Jumbo Loan Alternatives

Potential homeowners looking to finance a home for an amount above the set loan limit should know other loan options exist. Rather than applying for a jumbo loan, these individuals could opt to increase their down payment. This reduces the initial amount borrowed, and allows home buyers to secure a second loan on the difference. However, in this case, the interest rate may be higher.

Finding a Jumbo Loan

If you are in the market for a large mortgage loan, don’t let jumbo loan limits scare you. In reality, jumbo loan options are comparable to traditional loan programs. Many lenders require a minimum downpayment of 5 percent for jumbo loans. If your credit doesn't show the right balance of income to debt, a higher downpayment may be required.

Online mortgage companies offer online applications for jumbo home loans from the convenience of your home. These online mortgage companies provide quotes from different lenders, often providing up to four different quotes opening a variety of possibilities for people to secure a competitive loan agreement. Inquire with your lender regarding additional expenses relating to jumbo loans:

• points they may charge in advance
• details regarding any other fees such as closing costs

Jumbo loans are available in fixed-rate, interest-only and adjustable-rate varieties.

Jumbo Loan Drawbacks

Increased housing prices have generated a higher number of jumbo loan applicants. Due to the number of jumbo mortgage loan defaults, lenders in the mortgage business consider higher priced homes to be an increased risk. The higher risk leads to higher interest because this high-end sector of the real estate market presents a more vulnerable market that is susceptible to market lows and highs and are not easily sold in the mainstream market.

Along with increased risk to the lender, drawbacks and risks extend to borrowers as well. Along with the interest rates charged on jumbo loans, borrowers should think about the long term ramifications of committing to such a sizeable monthly payment. Don't forget that on top of that monthly payment, borrowers still have to pay property taxes, insurance or fees and assessments. Down the road a jumbo loan can be more expensive to refinance. If you choose an ARM jumbo loan, a boost in interest rates can result in a large dollar amount increase in the amount of the monthly payment.

If the borrower doesn't have a good credit score in addition to the right balance of income to debt, they could end up paying a higher downpayment. No matter what type of jumbo loan you choose, the risks are big because selling a high-end residence quickly and getting full price can be difficult.

Because of the large amount of money involved, when considering a jumbo mortgage loan potential borrowers should seek advice from a competent professional who is familiar with jumbo loan limits and the particulars involved in obtaining a jumbo mortgage.