What is a jumbo mortgage?

A jumbo mortgage is actually a mortgage with an amount that is above what the industry considers the standard definition of more conventional loan limits. These standards are pretty much set by two of the biggest secondary lenders on the market, Fannie Mae and Freddie Mac. Loans that go above these pre-set limits are called jumbo mortgages, and can be obtained either through seller services of these institutions, or from conduits on Wall Street who provide warehouse financing.
   
The Housing and Economic Recovery Act of 2008 helped to expand Fannie Mae’s definition of a “conforming” mortgage. In November 2008, general conforming loan limits, and high-cost area conforming loan limits were changed to reflect current real estate markets.

These limits apply to all conventional mortgages that have been delivered to Fannie Mae on or after January 1, 2009. These conforming loan limits are the same as the 2006, 2007, and 2008 conforming loan limits. High cost areas are determined by the Federal Housing Finance Agency (FHFA).

Basically, a loan that is over the amount of $417,000 in the US is considered a jumbo mortgage and $650,000 is called a super jumbo mortgage. Surprising as it might be, the interest rates on loans like this are very high. This is because jumbo mortgages are considered high risk by lenders. The reasons for this are many, but mostly boil down to two. One, because if a jumbo loan defaults, it is harder to sell this size of an estate quickly to make back the funds.

And second, because these luxury type homes are more subjected to the highs and lows of the market and are more easily influenced by the economy! The values rise and fall, meaning that risks are greater for lenders, because if they try to sell property on a bad market, they could lose a lot.

Jumbo mortgages are a bit rarer than typical loans, but this is just because there are hundreds of typical sized houses for each jumbo sized, or luxurious, home or building. Some lenders also differ on their policies with these mortgages, making them something that change a lot from lender to lender.