Jumbo Mortgage Rates: What, Why and How

Jumbo mortgages are home loans in amounts that exceed loan limits established by Fannie Mae and Freddie Mac. Jumbo mortgage rates may be higher than mortgage rates for conforming loans, but are not always, and it pays to shop and compare jumbo loan rates.

According to FHFA, the agency that regulates Fannie Mae and Freddie Mac, maximum conforming loan limits are determined annually by regulations outlined in the Housing and Economic Recovery Act of 2008. In most counties, the maximum conforming loan amount is $417,000 for a one-unit single family home, but FHFA allows higher maximum loan limits to $625,500 for single unit homes in designated high cost metros. (Alaska, Hawaii, Guan and the US Virgin Islands have their own special higher limits.) FHFA allows higher conforming loan limits for two to four unit properties, but if you need more than $625,500 for a one-unit home, you'll need to compare jumbo mortgage rates and loan terms.

Jumbo Mortgage Rates: It Pays to Shop

Although jumbo mortgages aren't eligible for purchase or backing by Fannie Mae and Freddie Mac, they may be backed by other investors that perceive additional risk associated with high loan amounts. Because some larger loans may be perceived by investors as riskier, jumbo mortgage borrowers may pay higher interest rates than borrowers of conforming loans. Lenders determine mortgage rates by considering multiple factors; this causes mortgage quotes to vary. While most mortgage shoppers focus on low mortgage rates, it's also important to compare estimated lender fees and costs when reviewing jumbo mortgage quotes.

Looking for a Jumbo Mortgage? Try These Tips

Money Magazine notes that jumbo mortgage lenders are seeking out wealthier customers and may offer concessions to well-qualified jumbo mortgage borrowers. In general, mortgage lenders reserve their best mortgage rates for borrowers with credit scores of 740 and above.

The Wall Street Journal offers tips for jumbo mortgage shoppers:

  • Get pre-approved for a jumbo loan. Mortgage pre-approval indicates to sellers that you can afford the home. Pre-approval also promotes faster closing and facilitate locking in a low jumbo mortgage rate.
  • Make a larger down payment. Making a down payment of more than 20 percent may get you lower jumbo loan rates and lender fees.
  • Consider an adjustable-rate mortgage. Rates for 5/1 Jumbo ARMs, which offer rates fixed for the first five years of their term, can be about .75 to 1.0 percent lower than their 30-year fixed counterparts.
  • Improve and protect your credit scores. Strive for a credit score of 740 or more, and once you've achieved it, protect against identity theft or missed payments that can damage your credit.
  • Shop with at least four lenders. Mortgage lenders that keep jumbo mortgages in their own portfolios have more leeway in setting rates, so they can vary more than conforming rates do.

Jack Guttentag, known as the Mortgage Professor, advises mortgage shoppers to compare offers from commercial banks, savings banks and credit unions. Shopping for mortgage quotes on an individual basis can be time consuming, but it takes just minutes to complete a single LendingTree form and request quotes from up to five competing jumbo mortgage lenders.

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