Definition of a Jumbo Loan
The purchase or refinance of an expensive home may require the use of a jumbo mortgage. The term jumbo mortgage refers to home loans that are larger than the typical mortgage loan size.
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Identification
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Jumbo loans are mortgage loans that exceed the lending limits of the government-backed lending companies, Freddie Mac and Fannie Mae. Mortgage loans that meet the limits allowed by Fannie and Freddie are called conforming loans. Loans that are larger than the limits accepted by these two agencies are called jumbo loans.
Size
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The Federal Housing Finance Agency sets the value of the conforming loan limit. From 2006 through 2010 the conforming limit was $417,000. Any mortgage loan for more than $417,000 would be a jumbo loan.
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Considerations
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In 2008 and 2009, several laws were passed increasing the loan limits for Fannie and Freddie in high cost housing areas. The limit varies based on the average home prices, with a maximum of $729,750. Home loans in these areas above $417,000 but below the new limit are called super conforming mortgages. These super conforming loans are still jumbo loans, but they may be financed using Freddie Mac and Fannie Mae programs.
Effects
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The interest rates on jumbo mortgages are higher than on conforming loans. A spot check of APRs for 30-year fixed-rate mortgages of several U.S. banks in August 2010 found rates ranging from 4.375 percent to 4.75 percent for conforming loans and 5.125 percent to 5.25 percent for jumbo loans.
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References
- Photo Credit Large New Ohio Home image by Shannon Workman from Fotolia.com
