A jumbo loan is any home loan that exceeds conforming loan limits set by the Federal Housing Finance Agency (FHFA) for mortgages acquired by Fannie Mae and Freddie Mac. For most homebuyers, the maximum loan limits in 2017 for one-unit properties will be $424,100. Loan limit for multiple unit buildings are higher. Created by Congress in 1938 and 1970 respectively, Fannie Mae and Freddie Mac provide stability and affordability to the mortgage market by buying “conforming” mortgages from lenders, which gives lenders liquidity to make more mortgages.
In higher cost areas, which include some counties in Colorado near Denver, that amount is higher, as much as $636,150 for a single family home. Multi-unit buildings in these areas have an even higher threshold.
Jumbo mortgages, also called non-conforming loans, are available for primary residences, second or vacation homes and are available for a variety of terms that include fixed-rate and adjustable loans. Jumbo loans typically have higher interest rates, stricter underwriting rules and require a larger down payment than standard mortgages.
The Housing and Economic Recovery Act of 2008 (HERA) established the baseline loan limit that defines jumbo mortgages in 2008. The act allows for the baseline loan level to increase in January each year, dependent upon the average U.S. home price. In counties where average home prices are higher, the baseline price is also higher. Click here to see loan limits in your county.
The underwriting process for jumbo mortgages is similar to that of conforming loans, but does have distinct differences. Often, two appraisals instead of one are necessary. Jumbo loans generally require high down payments, usually at least 20%, but that amount could be as low as 15% or as high as 30%.
Other requirements are also tougher because of the riskier nature of these loans. These include:
Although jumbo loans have more stringent qualifications, they have some flexibility that conforming loans do not:
If you or your spouse is a current or former member of the U.S. armed services, you may qualify for a jumbo loan or a jumbo refinancing loan under VA rules. Like other VA loans they offer more flexible requirement and may give you that ability to purchase a larger property that you would not be able to under conventional means.
Benefits of VA jumbo loans include:
How much money can I borrow with a jumbo loan?
Depending on your circumstances, you may be able to borrow as much as $3 million with a jumbo loan.
Can I expect to pay a higher rate with a jumbo mortgage?
In the years immediately following the Great Recession, jumbo mortgages had interest rates that were at least .25% higher than those for conforming loans. However, federal regulations have impacted rates in such a way that rates for jumbo loans are about the same as those for conforming mortgages. The exception is loans over $1 million where the .25% higher rate still applies.
Are ARM loans available for jumbo mortgages?
Yes. If you are looking to lower monthly payments at the outset, jumbo loans with a three-, five- or seven-year ARM may be available.
What are Fannie Mae and Freddie Mac and why are they significant to my loan?
Fannie Mae and Freddie Mac are U.S. government entities that act as links between local banks, the federal government and Wall Street. Their mission is to provide ready access to funds and reasonable terms. Fannie and Freddie buy most of the home loans in the United States, hold them or package them into mortgage-backed securities that are sold publicly to investors. These mortgage entities help maintain stability, affordability and liquidity within the industry. Most importantly, these they help homeowners secure lower interest rates and origination fees, obtain customizable mortgage programs and access home financing education programs.