What are Jumbo Loans?

Jumbo loans are mortgages with loan amounts exceeding Freddie Mac and Fannie Mae’s conforming loan limit. Jumbo loans are also called non conforming loans.

Who Needs Jumbo Loans?

Jumbo loans are required when traditional mortgage loans do not cover the new mortgage amount. Many cities have higher home values, and are thus subject to many jumbo borrowers. For example, a home in rural North Carolina might be worth four or five times less than the exact same home located in Chicago, IL. In North Carolina, a $400,000 home might be considered a mansion. In Chicago, however, a $400,000 home might be considered a starter home.

Jumbo loans are common for expensive or urban areas with higher home values.

More about Jumbo Loans

A disadvantage of the jumbo loan is the higher interest rates. Also, jumbo loans typically require higher credit scores and more restrictive credit standards.  For example, a jumbo loan product may require a downpayment of 20 percent, where e conforming will only require 10 percent down.

Jumbo loans offer similar product types to conforming loans, including fixed and adjustable rates, 30 and 15 year terms, and even the government sponsored FHA loan.