What is a jumbo mortgage loan?


A jumbo mortgage loan is a non-conforming loan - one that doesn't follow guidelines established by Freddie Mac and Fannie Mae. Those two corporations purchase mortgage loans made by the lender community according to pre-set loan amount, and underwriting requirements. Loans exceeding conforming amount limits are called jumbo and super jumbo loans.

In general, current conforming loan limits for single unit residential properties differ by area and are set at 125% of the median house price for the area, but not exceeding $729,750. Any larger loan amount is considered a jumbo loan. Super jumbo start at $2,000,000 but lenders have different scales for where the line between jumbo and super jumbo loans.

Different underwriting criteria apply for jumbo and super jumbo loans.

Jumbo and super jumbos usually allow much lower LTV (usually, no more than 70%) and require high asset liquidity. When the economy is stable, jumbo loans have only slightly higher interest rates than conforming loans. However, as a rule of thumb, larger loan amounts carry higher rates.

Many jumbos are in essence short-term commercial construction loans and those always carry higher rates.

Since it's either high net worth clients, or private investors that seek jumbo and super jumbo financing the underwriting criteria as credit score and history are applied differently. On the whole, residential jumbo mortgage lenders and commercial super jumbo loan lenders will have differing underwriting criteria. Mainly, assets and income sources will be considered when evaluating a jumbo loan application.

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