Jumbo Mortgage Defined

Since lenders have been affected by the recent housing meltdown, jumbo loans are harder to secure.

Jumbo mortgages are loans in excess of the conforming loan amount. For 2010, the conforming loan limit is $417,000. A loan in excess of $417,000 is considered a jumbo loan or jumbo mortgage.

Geography

In Hawaii and a few other regions, the conforming loan limit is $625,000. A jumbo loan is one exceeding the $625,000 threshold in these regions.

Effects

These loans are considered riskier investments for most banks, since they are not funded by the government-backed Freddie Mac and Fannie Mae loan programs.

Size

In order to qualify, lenders require at least a 20 percent down payment from the jumbo loan borrower. Borrowers must go through an extensive underwriting process. Lenders verify borrowers' monthly incomes.

Considerations

If a borrower's monthly income can adequately cover his monthly mortgage payment, then a lender may offer an interest rate comparable to the conforming loan interest rate. Additionally, banks require higher credit scores for borrowers seeking these large loans.

Warning

Usually, lenders only extend jumbo mortgages for home buyers who are purchasing their primary residences. Lenders are hesitant to loan these large amounts to home buyers who are making investment property purchases, since these borrowers are considered higher risks (borrowers are less likely to default on primary residence loan payments, since their primary residence is used for their basic shelter needs).

References

• Bankrate.com: Mortgage
• Fannie Mae Home Buying Process