AEM Mortgage Minute with Deanna Daughhetee

What's a Jumbo Loan?

Wednesday, August 9, 2006

Depending on your real estate market, a house in the $400,000 range is either the biggest home on the block or little more than a starter house. So why is it that a mortgage in the $400s is always considered a "Jumbo Loan"? Good question. Simply put, a mortgage is a Jumbo Loan if it exceeds the loan limits set by Fannie Mae (the Federal National Mortgage Association) or Freddie Mac (the Federal Home Loan Mortgage Corporation). These are the two government-sponsored enterprises that help facilitate home loans by investing throughout the country. Each year, a new "conforming loan limit" is published by these organizations. Because exceeding the loan guidelines means that the loan does not conform, a Jumbo Loan is also called a "nonconforming loan." In most respects, a Jumbo Loan behaves in the same way as smaller home loans. It can be fixed-rate, adjustable or a combination of the two. Its most common terms are 15 and 30 years. And it can be used to finance the purchase of a primary home, secondary home or investment property. Of course, the big difference is that a Jumbo Loan is for a larger-than-normal amount. Because of this, there is an added risk to the lender, which is reflected in somewhat higher interest rates for Jumbo Loans. Even slightly higher interest rates can sometimes be significant over the course of the loan due to the large amount being borrowed. But with overall rates still historically low, a Jumbo Loan can be a smart way to get into a larger home than you might have thought possible. Of course, the best way to find out what’s right for you is to consult with your loan officer. By the way, the 2006 limit set by Fannie Mae and Freddie Mac for single-family homes and condominiums is $417,000. Find out more by visiting www.fanniemae.com and www.freddiemac.com.