Jumbo loan basics

If you want to borrow an especially large amount of money to buy a home or refinance your existing mortgage, you may already be familiar with the term "jumbo loan," but you might not know all the basics about these bigger mortgages.

Jumbo loans are more than $417,000
A traditional jumbo loan is any mortgage for more than $417,000. Loans that are smaller than that amount can be sold to Fannie Mae and Freddie Mac, the two secondary market mortgage corporations. These smaller loans are called "conforming loans" because they conform to the Fannie Mae and Freddie Mac $417,000 limit. Loans for more than $417,000 are sometimes called "non-conforming loans" as well as "jumbo loans."

Lenders generally consider jumbo loans to be riskier than conforming loans because jumbo loans can’t be sold to investors such as Fannie Mae and Freddie Mac.

As a result of that perceived higher risk, jumbo loans typically have higher interest rates than conforming loans do. Lenders also tend to have stricter qualifying requirements for jumbo loans. For example, many lenders currently require a credit score of at least 700 and a down payment of at least 10 percent of the purchase price for a jumbo loan.

Super jumbo loans top out at $729,750
Fannie Mae and Freddie Mac can buy some loans that are bigger than $417,000 to meet the needs of borrowers in high-cost housing markets. The conforming loan limits for these markets are set on a county-by-county basis. The highest limit is $729,750. Loans that are larger than $417,000, but smaller than the county limit are sometimes called "agency-conforming jumbos" or "super-conforming jumbos."

To find out the maximum loan limit in your county, use this look-up table, http://www.fhfa.gov/webfiles/2081/FullCountyLoanLimitList2009_ARRA.xls, which is organized alphabetically by state and county.

Loan limit set by government agency
The conforming loan limit is set annually by the Federal Housing Finance Agency, the government regulator that oversees Fannie Mae and Freddie Mac. The national limit is based on changes in the average U.S. home price in the previous year. The limit can go up, but will never be lowered from one year to the next.


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