What is Jumbo Loan?
Jumbo loans also referred to as jumbo mortgages or non-conforming loans are loans that exceed the established conforming loan limit. Each January the Office of Federal Housing Enterprise Oversight (OFHEO) establishes the conforming loan limits. Traditionally, the limits have lingered around $400,000 per year. Currently, the conforming loan limit is $417,000 for condominiums and single family homes.
Consumers do have a choice when pursing a Jumbo loan. However, the interest on Jumbo loans are slightly higher than on conventional loans, although, not as high as they were in years past. A non-conforming loan can be a FHA loan, adjustable rate mortgage (ARM) or a fixed rate mortgage. Since the housing market slump, mortgage interest rates are hovering in lower ranges, this is also true of Jumbo loans. If a consumer can secure a Jumbo loan, the loans provide a greater sense of flexibility when choosing a home and settling on a payment amount.
Usually, Freddie Mac and Fannie Mae purchase mortgage originations as underlying securities from loan originators. Afterwards, both Freddie Mac and Fannie Mae reinvest in new mortgages. Conversely, because of the high credit risk of Jumbo Loans, Fannie Mae and Freddie Mac will not secure these type loans. Other institutions securitize jumbo loans, which creates the higher interest rates.
Popularity of the jumbo loans has spread to veterans affairs over years. VA loans now provide Jumbo loan options for active and veteran service members. Jumbo VA loans are funded up to $1, 000,000. Consumers with qualifying credit may obtain a VA loan up to the conforming loan amount, but must pay an additional twenty-five percent down payment on any amount over the conforming loan amount.