Jumbo conventional loans, also known as conforming jumbo loans, are mortgages offered in certain expensive areas that exceed the dollar limit of regular conventional mortgages. Conventional loans are mortgages that fit certain guidelines established by the Federal Housing Administration. These loans are typically sold to government-sponsored mortgage companies Freddie Mac and Fannie Mae. Jumbo conventional loans have higher dollar maximums and loan-to-value ratios than other conventional loans.
As of 2011, residential mortgages in excess of $417,000 are classified as jumbo loans. Generally, interest rates offered for jumbo loans are about 1 percent higher than rates on smaller loans. Borrowers must make down payments of at least 20 percent when taking out jumbo purchase loans. Due to the high dollar amounts involved, lenders normally require borrowers taking out jumbo loans to have above average credit scores and very low debt-to-income levels.
Conforming Jumbo Mortgages
Home prices are higher than average in many parts of the United States, and consequently, the FHA establishes dollar limits on conforming loans on a county-by-county basis. In some high value areas as of 2011, loans in excess of $417,000 but below $729,750 are classified as conventional or conforming jumbo loans. The rates on these loans are comparable with rates on conventional loans. Borrowers can take out conventional jumbo loans that amount to up to 90 percent of a property's value.
The FHA uses different criteria for jumbo loans and conventional jumbo loans in Hawaii, Alaska, Guam and the U.S. Virgin Islands. As of 2011, mortgages written in these areas of $625,500 or less are categorized as conforming loans. Loans in excess of $625,500 but below $1,094,625 are classified as conforming jumbo loans. True jumbo loans in these areas are mortgages in excess of $1,094,625. The FHA revises loan limits on an annual basis based on living costs.
Loan limits for conforming jumbo loans apply to single family residences, but FHA guidelines also allow lenders to write conforming jumbo loans for two-, three- and four-unit properties. Mortgages for duplexes of between $533,850 and $934,200 are classified as conforming jumbo loans. In Hawaii, Guam, Alaska and the U.S. Virgin Islands conventional jumbo limits on duplexes range from $800,775 to $1,401,350. However, for duplexes and other larger properties borrowers must make down payments of between 25 and 30 percent.