Jumbo Mortgage

Fannie Mae and Freddie Mac, the two largest participants in the secondary mortgage market, have established several parameters under which they will purchase a mortgage from a lender. In keeping with their goal of promoting homeownership for as many Americans as possible, both institutions have set a dollar limit of $333,700 for a single family home.

Mortgages above the $333,700 amount are called nonconforming loans, because they do not meet Fannie Mae and Freddie Mac specifications. These large loans are referred to as jumbo loans, and are used to finance more expensive homes for individuals who can handle a larger monthly payment.

Some lenders also have a Super Jumbo category for loans over $650,000. Amounts may go up to $1 million; there are very few lenders who will issue home loans for above that amount. Some of the larger jumbo loans are available as an interest only loan, in which the homeowner is allowed to pay interest only for a specified period of time.

An interest only loan is good for an individual who has a cyclical income, or may be expecting a large windfall at some point in the future. With an interest only loan, the borrower pays only interest every month, with the option of paying additional amounts towards principal at any time.

Many jumbo loans carry a slightly higher interest rate than a conforming loan; however, as with any type of loan, the final rate depends on the borrower, and that borrower’s relationship with the lender. Like any type of standard mortgage, jumbo loans are available in fixed and variable terms. In addition to a slightly higher interest rate, a jumbo loan may have additional restrictions, which may include property location, or loan-to-value ratios.

Depending on the overall price of the home, a buyer may avoid having to take a jumbo loan by combining a first a second mortgage in, for example, an 80/10/10 combination, with a first mortgage for 80 percent of the price, a second for ten percent, and a cash down payment of ten percent.