The Jumbo Mortgage Explained

A jumbo mortgage is a loan for an amount above the normal loan limits. These limits are set by Fannie Mae and Freddie Mac and are considered “Jumbo” because they are too large to be purchased by these two companies. As of now jumbo mortgages are loans in excess of about $400,000 in the continental USA. Because of the economic stimulus packages this limit has been raised and reset quite few times.

Jumbo mortgages are considered much more risky to lenders because if the loan happens to default it is much harder for the lender to simply sell the luxury home and break even. Because of this lenders try to get a higher down payment. There usually are other restrictions on the loan as well.

Because of the increased risk, lenders make it worthwhile to themselves by charging a higher interest rate as well as force you to take out a private mortgage insurance on the loan (called PMI) to make sure they get paid in the event you default.

As of late 2009 banks are beginning to get interested in jumbo mortgages again and trying to lower their rates to get more customers. They can do this because many consumers took their money out of the volatile investment vehicles such as the stock market and put their money in the “good old safe bank” so the bank can lend this money.

Although this recent move by the banks lowered rates, it is still as hard as ever to get a jumbo mortgage, which means when shopping for one you need a pristine credit and decent income and a large down payment.

As competition goes up so will availability so keep shopping and eventually you will come across a jumbo mortgage that is right for you that you also qualify for, but with the limits changing quite often as of now perhaps you could make do with a regular mortgage