Jumbo Loans in this context are any mortgage which is not guaranteed or insured by the US Government which has a loan balance over the Conforming Loan Limit set by Fannie Mae and Freddie Mac. Currently the conforming limit is $417,000 for a Single Family unit with exceptions in certain counties with higher limits via high balance loans. There is no set maximum loan amount, that may vary from lender to lender, but it is not uncommon to see loan amounts in the millions. This may be the only means for some homebuyers to acquire a higher priced home.
Because of the larger loan amount the risk associated with the loan increases and therefore down payment requirements are usually set higher than other loans to mitigate that risk. Jumbo loans also may have a higher interest rate compared to a similarly structured Conforming Loan.
Some of the key advantages of the Jumbo Loan are:
- Much higher loan balances may be available
- Flexible underwriting (more creative financing options)
- May finance vacation/second homes
- Financing may be available for certain investment properties
- Lenders may be willing to reduce or eliminate certain loan fees