Jumbo Mortgage Loans

Mortgage loans that are considered jumbo loans are those that exceed the limits that have been set by the government sponsored agencies, Fannie Mae and Freddie Mac.  The Housing and Economic Recovery Act of 2008 changed Fannie Mae’s charter to expand the definition of a conforming mortgage loan.  According to provisions of the Housing and Economic Recovery Act of 2008 (HERA), the national loan limit for mortgage loans to be securitized or purchased by the government agencies of FNMA and FHLMC  is set based on changes in average home prices over the previous year, but cannot decline from year to year.

Fannie Mae and Freddie Mac each year set the limit on what constitutes a conforming loan, based on the October-to-October changes in mean home price following the terms set by The Federal Housing Finance Agency (FHFA).  The Federal Housing Finance Agency (FHFA) has announced that the conforming loan limit will remain $417,000 for 2009 for most areas in the U.S. but specified higher limits in certain cities and counties. The conforming loan limit is the maximum size of loans that Fannie Mae and Freddie Mac can purchase in 2009.  The high cost areas are determined by the Federal Housing Finance Agency.

Every year the limit is reset to a new number in the month of January, while the numbers are constantly changing on a yearly basis, one of the most recent updates disclosed that the maximum loan amount is $417,000 for condominiums and single-family homes.  Once your loan has exceeded this pre-set limit, you are no longer applying for a standard loan or conforming loan, but rather, you have moved into the jumbo loan category.  The 2009 general conforming mortgage loan limits are identical to the 2006, 2007, and 2008 conforming mortgage loan limits.

The reason why some people need a larger home loan does not always mean they are seeking out the biggest and most expensive houses to live in.  There are some parts of the country where starter homes can cost more than $500,000.  The person who would choose to purchase these more expensive homes may find that a standard, conforming loan will not be sufficient.  The mortgage loan often needed to buy these higher priced homes is called a jumbo loan.  Jumbo loan applications have risen measurable in recent years due to the rapid increase in housing prices.

Typically there is a slightly higher mortgage rate associated with jumbo loans.  Sometimes the definition of higher mortgage rate can be staggering; anywhere from a mortgage rate that is ¼% higher to 1% higher than conforming sized home loans.  This is because both Fannie Mae and Freddie Mac only buy mortgage loans that are conforming loan size, to repackage into the secondary market, making the demand for a non-conforming loans or jumbo loans much less.  Since these mortgage loans are not securitized by Fannie Mae or Freddie Mac, the less liquid market for jumbo loans leads to a somewhat less uniform set of standards.

Jumbo mortgage loans have many of the same options and attributes that are available on conforming loans.  They will however, all have some restrictions.  The variety of home loan types is not usually as vast with jumbo mortgage loans but you will certainly find 30 year fixed rate jumbo loans, 15 year fixed rate jumbo loans, adjustable rate jumbo mortgages, and a host of hybrid mortgage loan types.  All of these jumbo loan programs will feature slightly higher mortgage rates than if they were compared to national averages.  The higher mortgage rates apply to both purchase transactions as well as refinances. 

The qualifying requirements for jumbo home loans will also be more stringent.  Required credit scores will be higher.  Down payment requirements will more restrictive leading to larger down payments and lower loan to values.  Financial reserves or funds that are available after the mortgage loan closing costs and down payment will need to be more substantial. 

This not to say that jumbo home loans will have extremely high interest rates or a thicket of qualification requirements.  It is simply that jumbo home loans have discernibly higher requirements and theta a jumbo home loan borrower should be prepared that in order to borrow much more than the standard mortgage loan borrower they will have a somewhat higher burden during the mortgage underwriting process.

When shopping and comparing jumbo loans, a prospective borrower will want to research and compare as many mortgage lenders as possible and be sure to ask about the jumbo loan mortgage rates to avoid obtaining inaccurate information.  There is no point in searching for the mortgage rate and qualifying requirements on a 30 year fixed rate loan only to find out that the information you receive is for a conforming loan amount. 

While these mortgage rates on jumbo loans are higher than others, once you look at all of the payment options and how this interest is distributed throughout the life of the loan, you will be able to find the home loan that fits your financial situation best.  Just because you have to use a jumbo loan doesn’t mean that you have to pay a jumbo monthly mortgage payment. 

Draw on the mortgage calculator to help calculate the monthly payments differences between the varying jumbo loan terms as well as the rate difference between a conforming loan and a jumbo loan to thoroughly evaluate all options.  A good source for mortgage calculators can be found at www.selectcalculators.com.