Jumbo Loans

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What Is Considered a Jumbo Loan?

Jumbo loans are mortgages for more than $417.000.
 

The term jumbo loan applies to the mortgage loan market. Mortgages that are classified as jumbo loans are underwritten and rated differently than non-jumbo or conforming loans as they are often called. Home buyers or those trying to refinance an existing loan should understand the differences between jumbo and non-jumbo mortgage loans.

Identification

Size

Effects

History

Considerations

  1. The two government sponsored mortgage agencies, Freddie Mac and Fannie Mae, set the limits for the mortgages these agencies will purchase and insure. Often called conforming mortgages, loans accepted by the agencies qualify for the lowest interest rates. Freddie and Fannie set a maximum limit for the amount of mortgage they will accept. Mortgages for a highervalue than the conforming limit are called jumbo loans and cannot be accepted by Fannie and Freddie. Conforming mortgages are also referred to as FHA mortgages or loans.
  2. Since 2006, the limit for a conforming loan has been $417,000. Certain high-cost areas have had a conforming limit of up to $729,750 since 2008. Any mortgage loan above these levels are jumbo loans or mortgages. High limit areas are designated counties primarily in Alaska, California, Colorado, Florida, Hawaii, Maryland, Massachusetts, New Jersey, New York, Virginia and Puerto Rico. Quite a few of the other states have a county or two that qualify for the higher limits.
  3. Home buyers for homes that require a jumbo loan will have to put down a larger down payment and pay a higher mortgage rate. FHA qualified buyers and loans can be approved with a 3 percent down payment. Jumbo loans will require down payments of 10 to 20 percent. After the financial crisis of 2008, jumbo loans became significantly more expensive than conforming mortgages. When conforming mortgage rates were at about 5 percent, jumbo loans had rates above 6 percent.
  4. After the financial crisis, the number of lenders who would take jumbo loans decreased significantly. As the federal government continued to support the conforming loan market by purchasing FHA qualified mortgages, the spread between conforming rates and jumbo rates widened to almost two percent. By Spring of 2010 the spread had narrowed and according to the Los Angeles Times the jumbo market was showing signs of recovery.
  5. Potential home buyers looking at homes where the mortgage will be above $417,000 should be aware of the extra rate and down payment requirements of jumbo loans. For sellers, the jumbo loan cutoff makes it more difficult for a buyer to qualify for a mortgage if the amount borrowed will be above the qualifying loan limit.

Jumbo Loans:

Jumbo Loans exceed the maximum loan amounts established by Fannie Mae and Freddie Mac conventional loan limits. Rates on jumbo loans are typically higher than conforming loans. Jumbo Loans are typically used to buy more expensive homes and high-end custom construction homes.

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