A jumbo loan is a loan with a loan amount larger than the limits set by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. Currently the limit is set at $417,000 for most areas. Special areas such as Alaska, Hawaii, Guam, and the U.S. Virgin Islands have a higher limit of $625,000. Because jumbo loans cannot be funded by these two agencies, they usually carry a higher interest rate; usually .25% to .50% higher than that of a conforming loan.
More On Jumbo Loan
Jumbo loans are conventional (non-government) mortgages with loan amounts that exceed limits set by Fannie Mae and Freddie Mac. As of 2015, the limit for much of the country is $417,000. In higher-cost markets, loan limits can be up to $721,050 for a single unit home (duplexes, tri-plexes and four-plexes have higher limits).
Because these loans cannot be purchased by the two government-sponsored enterprises (GSEs), jumbo mortgages can be more costly for lenders to originate and their interest rates are often (but not always) higher than those of smaller loans.
Because jumbo (also called non-conforming) mortgages do not have to conform to GSE guidelines, their underwriting standards and loan features vary more than those of conforming mortgages, and their prices do as well.
Because a small difference in interest rate can make a large difference in cost when loan amounts are higher, it is even more important for borrowers seeking a jumbo mortgage to comparison shop and negotiate their best mortgage rate.