Jumbo mortgages are also referred to as “non-conforming” home loans. This is because unlike loans sold through Fannie Mae or Freddie Mac, there are no universal eligibility and underwriting guidelines for jumbo products. This means that the terms of jumbo home loans can vary wildly — for example, one lender might allow self-employed applicants to prove their income with bank statements instead of tax returns (this is called an Alternative Income Verification loan) while another might want to see tax returns, business licenses and financials from an accountant.
Some lenders approve 90 percent jumbo loans while others draw the line at 80 percent. Some allow log homes and high-rise condos while others won’t touch them. Jumbo mortgage lenders also vary in their willingness to accept applicants with less-than-excellent credit scores. Bloomberg recently reported that some of today’s jumbo mortgages have complex features that “can increase risks for certain investors.” To induce investors to buy these loans, they must pay higher interest rates than safer conforming products that also compete for investors’ attention.