Jumbo Loan

Jumbo Loan is a mortgage loan that exceeds the conforming loan limits established by government-sponsored enterprises (GSEs). Most often these are Fannie Mae or Freddie Mac.

Role of the Federal Housing Finance Agency

The Federal Housing Finance Agency (FHFA) sets conforming loan limits. They determine the maximum loan amount that Fannie Mae and Freddie Mac can purchase or guarantee. These limits vary by location and are typically adjusted annually to reflect changes in the housing market.

Characteristics of Jumbo Loans

When a mortgage loan exceeds the conforming loan limits, it is a jumbo loan. They generally have higher loan amounts and are often used to finance expensive properties in high-cost areas where housing prices are above the conforming loan limits.

Qualification Criteria for Jumbo Loans

Jumbo loans typically have stricter qualification requirements than conforming loans. Lenders may require higher credit scores, lower debt-to-income ratios, largerdown payments, and additional reserves. This helps to mitigate the risk associated with larger loan amounts.

Interest Rates and Market for Jumbo Loans

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.

Staying Informed on Loan Limits

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.

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