Jumbo Loan is a mortgage loan that exceeds the conforming loan limits established by government-sponsored enterprises (GSEs) like Fannie Mae and Freddie Mac.
A mortgage loan that exceeds the conforming loan limits established by government-sponsored enterprises (GSEs) like Fannie Mae and Freddie Mac is commonly referred to as a jumbo loan.
Conforming loan limits are set by the Federal Housing Finance Agency (FHFA) and determine the maximum loan amount that can be purchased or guaranteed by Fannie Mae and Freddie Mac. These limits vary by location and are typically adjusted annually to reflect changes in the housing market.
When a mortgage loan exceeds the conforming loan limits, it is considered a jumbo loan. Jumbo loans are generally associated with higher loan amounts and are often used to finance expensive properties in high-cost areas where housing prices are above the conforming loan limits.
Jumbo loans typically have stricter qualification requirements compared to conforming loans. Lenders may require higher credit scores, lower debt-to-income ratios, larger down payments, and additional reserves to mitigate the risk associated with larger loan amounts.
Since jumbo loans are not eligible for purchase or guarantee by Fannie Mae and Freddie Mac, lenders that offer jumbo loans generally keep them on their own books or sell them to investors in the secondary market. This means that interest rates on jumbo loans can be higher compared to conforming loans, as lenders take on more risk.
It’s worth noting that the specific loan limits for conforming and jumbo loans may change over time, so it’s essential to consult the FHFA or a mortgage professional to get the most up-to-date information regarding loan limits in a particular area.