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In the United States, a jumbo mortgage is a mortgage
with a loan amount above the industry-standard definition of
conventional conforming loan limits. This standard is set by the two
largest secondary market lenders, Fannie Mae and Freddie Mac. Loans
above the conforming limits may be offered by seller servicers of
these wholesale institutions, as well as Wall Street conduits who
provide warehouse financing for mortgage lenders.
The loan amounts reflect average loan sizes
nationwide. Jumbo mortgages apply when agency (FNMA and FHLMC)
limits don't cover the full loan amount. Fannie Mae (FNMA) and
Freddie Mac (FHLMC) are large agencies that purchase the bulk of
residential mortgages in the U.S. They set a limit on the maximum
dollar value of any mortgage they will purchase from an individual
lender. As of 2006, the limit is $417,000, or $625,500 in Alaska,
Hawaii, Guam, and the U.S. Virgin Islands for single family homes.
Other large investors, such as insurance companies
and banks, step in to fill the need, with maximum mortgage amounts
going to the $1 million or $2 million range.
A loan in excess of $650,000 is referred to as a
super jumbo mortgage. The average interest rates on jumbo mortgages
are typically greater than is normal for conforming mortgages, and
vary depending on property types and mortgage amount.
A Super Jumbo Mortgage is classified as a
residential mortgage or other home-equity secured loan in an amount
greater than $650,000, although lenders differ on just what
constitutes a super jumbo mortgage subject to their own internal
investment criteria. Super Jumbo mortgages are made available to
borrowers whose loan requirements exceed the guidelines commonly
referred to as Jumbo loan limits.
Jumbo mortgage loans are a higher risk for
lenders. This is because if a jumbo mortgage loan defaults, it is
harder to sell a luxury residence quickly for full price. Luxury
prices are more vulnerable to market highs and lows. That is one
reason lenders prefer to have a higher down payment from jumbo loan
seekers. Jumbo home prices can be more subjective and not as easily
sold to a mainstream borrower, therefore many lenders may require
two appraisals on a jumbo mortgage loan.
The interest rate charged on jumbo mortgage loans is generally
higher than a loan that is conforming, due to the higher risk to the
lender. The spread, or difference between the two rates, depends on
the current market price of risk. While typically the spread
fluctuates between 0.25 and 0.5%, at times of high investor anxiety,
it can exceed 1.5% or more.
In today's jumbo mortgage market, we've seen some
lenders charging 8.5% to 9% with 2 to 4 points. Many lenders no
longer publish jumbo rates for this reason.
Note that most jumbo mortgages are for purchase
and refinance transactions. For cashout refinance transactions, we
have found most investors if not all of them do not permit cashout.
We no longer offer jumbo or super jumbo mortgages
except for Federal VA loans up to
$1,000,000 for eligible veterans and spouses.
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